Forty United States Senators from both sides of aisle gathered for an early morning closed briefing on our greatest national security threat -- our unsustainable debt. The meeting happened only days before a possible government shutdown. But we were concerned about a more serious shutdown -- a shutdown of our economy.
The senators sat in rows, as if students again. The presenters were renowned economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard, coauthors of the best-selling book titled, "This Time Is Different: Eight Centuries of Financial Folly."
Reinhart and Rogoff had spent much of the past year dismantling the mistaken belief that "this time is different" -- the notion that this particular group of policymakers in this moment in history was somehow smarter than all the others and could run up debt forever without catastrophic consequences. A key conclusion of their work is that economies like ours slow down considerably when our debt-to-GDP ratio reaches about 90 percent (we are now at debt-to-GDP ratio of 100 percent).
Johnny Isakson, a Republican from Georgia and always a gentleman, stood up to ask his question: "Do we need to act this year? Is it better to act quickly?"
"Absolutely," Rogoff said. "Not acting moves the risk closer," he explained, because every year of not acting adds another year of debt accumulation. "You have very few levers at this point," he warned us.
More hands went in the air.
Senator Mary Landrieu, a Democrat from Louisiana, asked how concerned we should be about revenues and tax rates. Neither Reinhart nor Rogoff said we could fix our debt problem with just tax increases. Senator Bob Corker, R-Tenn., asked how relevant it was where our debt is bought -- at home or abroad. "Very relevant," Rogoff responded. "You have less leverage when it's external."
Senator Kent Conrad, D-N.D., the chairman of the Senate Budget Committee, then offered his own stern warning to the assembled senators. Turning around in his chair in the middle of the room, he explained to his colleagues that when our high debt burden causes our economy to slow by 1 point of GDP, as Reinhart and Rogoff estimate, that doesn't slow our economy by 1 percent, but by 25 to 33 percent, because we are growing at only 3 or 4 percent per year.
Reinhart echoed Conrad's point and explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous to let that much debt accumulate. She said, "If it was not risky to hit the 90 percent threshold, we would expect a higher incidence."
"Thank you for your depressing presentation," Senator Dick Durbin, D-Ill., said in closing, to self-conscious laughter around the room.
A year later Congress still has not addressed our long-term debt problem, even though all sides acknowledge the seriousness of the threat. Even worse, we are wasting time debating proposals like the Buffett Rule that illustrate the triumph of short-term political expediency ahead of long-term problem solving.
Admiral Mullen is right when he describes the debt as our greatest national security threat. Besides the reasons spelled out by Reinhart and Rogoff above, here are a few more reasons why:
A return to normal interest rates would wreck our economy. Historically, interest rates have average about 6 percent. A return to those rates would add $350 billion to the deficit every year and kill any housing recovery that might be underway.
Medicare as we know it could end in 2016. According to an estimate from the Medicare trustee's latest report the hospital insurance trust fund (Medicare Part A) will be bankrupt in 2016. Even worse, CRS has provided an analysis that I am releasing today that shows Medicare many not be able to pay providers when the trust fund is depleted.
Further downgrades are likely. The international financial community is sure to punish us with additional downgrades if Washington continues to pretend that there isn't an entitlement and spending crisis.
The government will rely on inflation and currency debasement to hide the cost of our debt. Economists call this approach "financial repression," which will destroy the middle class.
What is radical in Washington today is not any solution to this problem, but the status quo itself.
Tom Coburn, M.D., is a Republican U.S. senator from Oklahoma.