Becoming Venezuela

OPINION:

Some time ago, I asked a friend what the financial crisis that would eventually submerge the U.S. dollar as the world’s reserve currency would look like. Would it be a failed bond auction or a run on gold?

Like many before him, he looked at me like teachers look at their less gifted students and said simply that the value of the dollar would erode slowly, almost imperceptibly, and then one day we would “wake up and be Venezuela.”

His prediction was memorable for its starkness and its apocalyptic vibe. And given the developments over the last few years, it now seems more reasonable than not.

The simple reality is that the federal government — under the “leadership” of both Republicans and Democrats — has been doing its best for the last 20 years or so to destroy the dollar’s value. At the moment, we have a national debt of about $35 trillion, or about 115% of the United States’ gross domestic product. That compares with a little less than the $18 trillion national debt we owed 10 years ago.

It’s not getting better. We are on track to run a deficit of about $1.8 trillion this year. Last year, we ran a deficit of $1.7 trillion. You can bet that next year, we will add at least $1.5 trillion to the federal debt.

If that seems unsustainable, it is because it is.

It may be difficult to remember, but as recently as 2001 — and for the three years before that — we actually ran a federal budget surplus. So we know it can be done; it is within human capacity to limit the federal government’s spending.

Unfortunately, neither of the principal presidential candidates has any intention of reducing federal spending. Indeed, both have sketched out plans that would probably result in greater federal spending, and next year’s tax and debt ceiling contests seem unlikely — at this point — to change our trajectory.

You can’t really blame them. How many voters identify the federal debt as an important or pressing issue? Not many. As for members of Congress, they also have no incentive to rein in their impulse to impose more debt on American children.

Eventually, though — to borrow from my friend — debt incurred due to federal spending will mean that no one will want to lend us cash because they will consider the United States a lousy credit risk. Who could blame them?

We have become the profligate family members who always assume that someone else will cover their debts until they don’t. To borrow from Hemingway, people — and in this case, nations — tend to go bankrupt in two ways: gradually and then suddenly.

But, but, but … the economists argue that nations are different from individuals. But they aren’t really. Eventually, economic realities catch up with everything and every organization, even one as large and powerful as the United States of America. As the great economist Herb Stein noted, “If something cannot go on forever, it will stop.” Certainly, federal spending cannot go on forever at this pace.

Forget the numbers for a moment. If you owe someone cash, they own a part of you. They have some control over what you can do. Incurring and carrying debt constrains your freedom to act, whether as an individual or a nation. It means that those who come after you will be poorer and their freedom to act will be even more constrained.

That’s bad for individuals, and it’s bad for nations.

• Michael McKenna is a contributing editor at The Washington Times and the co-host of the podcast “The Unregulated.”