Take a close look at Puerto Rico. Is this the future of the United States?
The island commonwealth, a U.S. territory, is bankrupt. It has borrowed and borrowed to pay its debts until it can’t borrow any more. Now, a judge will have to sort things out while life on the island gets worse and worse.
Unemployment is about 12 percent, as of last fall. Government pensions are out of money. The commonwealth government owes billions to creditors that include Microsoft and other private companies.
But the people of Puerto Rico with means can at least escape to the United States, where jobs remain plentiful and schools and other institutions still operate.
But for how long?
A few observers are noting how the recent deal Congress and the president made in order to keep the U.S. government running until September gives both Republicans and Democrats what they want. Republicans get a lot more money for defense. Democrats gets to keep all the programs President Trump threatened to slash. Most of those get increases.
Nothing gets cut.
In a piece for National Review subtitled, “We are at a point where every additional drop of rid ink counts,” CATO Institute fellow Michael Tanner says the deal increases federal spending by $63 billion over 2016 levels.
He writes, “Last month, the Congressional Budget Office warned that the national debt will double as a share of the national economy by mid century. Trillion-dollar budget deficits are expected to return within the decade. Interest payments on the debt will rise from $270 billion in 2017 to $768 billion in 2027. Our total indebtedness, including the unfunded liabilities of programs such as Social Security and Medicare, approaches $100 trillion.”
Adam Kazda, of a group called “Restore Accountability” wrote about the same topic for The Hill. He said, “With almost $20 trillion in debt and billions added each day, our country is on an unsustainable path. To make matters worse, Congress has made over $100 trillion in promises to our senior citizens and future retirees through our unsustainable entitlement programs.”
What happens when the nation’s debt is so high it is larger than economic output? Eventually, investors in U.S. debt begin to lose confidence in the nation’s ability to pay. They begin demanding higher interest rates, which in turn makes it harder for the nation to borrow, which naturally leads Washington to print more money, which leads to inflation, which leads to less purchasing power for Americans, which leads to unemployment, the bankruptcy of entitlement programs, the insolvency of government pensions and on and on. The dollar would lose its place as the nation’s leading currency. The United States would lose its influence worldwide. The military no longer could sustain armed conflicts in far-flung places. The world would lose its freedom-loving super power.
When that time comes, no one in Washington should be surprised. Wise people have been predicting this for years. Not too long ago, Republicans were running on a platform of fiscal conservatism and the need to balance the budget.
But, as Tanner writes, “… President Trump has never cared about deficits or the level of government spending.” The party, apparently, was more interested this time in avoiding a shutdown than in pressing any points about austerity.
And Americans, generally quite ignorant about economics and highly indebted themselves, don’t know enough to complain, and eventually they won’t know what hit them.