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Judd Gregg: Coronavirus is a debt crisis too

Judd Gregg: Coronavirus is a debt crisis too
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The deficit for this year is now projected to exceed $4 trillion. This makes the deficit approximately four times larger then any deficit ever wrung up before.

The debt we will owe as a nation will exceed our gross domestic product by the end of the fiscal year. This puts us into Greece-like status.

The primary Social Security fund is now running cash negative and is projected to be insolvent within 15 years — or possibly even before the end of this decade.

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Next year’s deficit will likely be well over $2 trillion.

The Federal Reserve will have expanded its balance sheet — which is a nice way of saying “printed money” — to the tune of at least $7 trillion and maybe more.

This will flood commerce with liquidity, i.e. dollars, in the hope of keeping the economic engine of the country running.

These are horrific numbers.

There is no economic experience comparable to this.

The only time the United States had this type of cataclysmic debt expansion was during the Second World War.

That time does not overlap with this time.

At the end of the Second World War we were, so to speak, the last man standing.

Ours was the only industrialized economy that had not been devastated by the war.

Our debt had expanded dramatically but our position of dominance in world commerce had expanded even more. We were in a growth spurt relative to the rest of the world and our post-war economic boom was unparalleled.

Today is different and tomorrow will also be different.

The entire developed world is awash in sovereign debt.

It could be argued that because of the natural resilience of our people and our unique capacity to drive growth, we are the best horse in the glue factory of debt.

But we are in the glue factory nonetheless.

Old truisms like “when you’re in a hole stop digging” simply do not apply.

The digging goes on, ferociously, by both President TrumpDonald John TrumpTrump alludes to possible 2024 run in White House remarks Trump threatens to veto defense bill over tech liability shield Tiger King's attorney believes they're close to getting pardon from Trump MORE and Congress.

There seems to be no limit to the amount of new spending that is proposed and quickly passed in order to try to address the disorder brought on by this pandemic.

The virus has created an immediate trauma.

Addressing it has resulted in a political decoupling of today from tomorrow.

There is simply no interest in considering what all this debt may mean for times to come while today’s needs both political (regarding the upcoming election) and substantive (regarding the crushing effects of the virus on public health and the economy) are so overwhelming and urgent.

Concerns about the debt, deficits and the printing of money have been buried by both parties as the president, the Congress and the Federal Reserve reel under the pressure to “do something.”

Where will this lead us? What does it mean once we get a vaccine and get past the health threat of this pandemic?

It is apparent that there will be a reckoning.

It is the position of those who are driving both the monetary and fiscal explosion that the harm of not undertaking this massive expansion in debt would far exceed the harm that all this debt will cause down the road.

One can accept this posture up to a point.

There is no question that bringing the economy to a full stop has radically impacted the life and economic wellbeing of millions of Americans.

Mitigating this trauma is a justifiable cause.

But at some point, after the virus has been dealt with, we will need to deal with the after-effects of all this spending.

By driving the debt past the size of the nation’s GDP and flooding the markets with newly printed money, the policy leaders have set up a scenario where sometime — whether it be five years or seven years from now — the piper will have to be paid.

There will be an accounting.

Debt has to be repaid. Money does not grow on trees.

How to anticipate and plan for that accounting should be a priority even as we wrestle with the chaos of present events.

Federal Reserve Chairman Jerome Powell has stated that the Fed is considering and planning for this.

It would be interesting to know what options they think they will have for getting all this new money out of the economy before it generates serious inflationary pressures and thus leads us back into some level of recession.

More importantly though, because they have a clearer course to constructive action, the Congress and president need to respond to managing the fiscal debt.

If the Congress and president were capable of putting forward a pathway to stabilizing the debt-to-GDP ratio at a manageable number, for example under 70 percent in a predictable time frame, this would greatly enhance the likelihood that the nation could recover.

Our future could be addressed in an orderly manner.

But neither Trump nor Congress in recent times has shown much interest in, or aptitude for, anticipating problems especially when it comes to the deficits and the debt.

This needs to change.

If it does not, then the next wave of trauma caused by this virus may not be health-driven but rather debt-driven.

There is a simple and effective way to accomplish this change.

The president and Congress should set up a new Simpson-Bowles-type commission to stabilize our fiscal house.

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This time, it should have real teeth in pushing through its proposals.

It should be structured with the intent that the changes it recommends would be initiated, not immediately, but over a period of years.

It should put forward a glide path to solvency that the Congress and the president would have to accept or reject in its entirety.

Such a path, if honestly presented, would have to include major entitlement reform especially in the healthcare arena, as well as tax reform.

If it worked then, as a nation, we would come out of this immediate health and economic crisis with a game plan that is specific and enforceable — and which would be timed appropriately to address this next crisis, the debt crisis.

This is doable.

It should also be appealing to policymakers of today as it would show they have a plan for dealing with the debt that they are currently expanding. But the plan would be phased in so that the policy makers of today would not bear the burden of its execution.

In traditional legislative and political style, it would “pass the buck” not only on what action to take but on when to take it.

As such, it would be a classic political win-win that is also critical to the wellbeing of our people as we go forward, after the virus.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.