Owing the World
The biggest share of the federal budget goes for benefit payments to individuals through Social Security, Medicare and the like. Defense gets the second-largest portion. What’s next? Unbelievably, it’s interest on the national debt. This year just over $139 billion will be spent for debt service. That’s 14 cents out of every budget dollar. It used to be argued that the federal debt didn’t matter much because we only owed the money to ourselves. No more. In 1987 foreigners collected an estimated $23.5 billion as their share of debt-servicing costs. This year they will get more.
The United States has now become the largest debtor nation. When this fiscal year began last Oct. 1, foreigners held $268.4 billion of the national debt, up from $121.7 billion in 1980. That was a rise of 120%. By 1986, according to the Commerce Department, foreigners also held $309.5 billion in American corporate and other non-federal bonds, along with $449 billion in reported U.S. bank liabilities. Foreign claims in the United States, in short, had passed $1 trillion.
Interest payments on the national debt are an obligation backed up by the full faith and credit of the United States. That’s why debt payments are non-discretionary. They can’t be postponed or arbitrarily reduced or eliminated. Money spent to service the debt is money that can’t be spent on other things. President Reagan never stops reminding people how his Administration succeeded in reducing the rate of growth in federal social programs. What he doesn’t talk about is how so much of what is no longer spent on social programs instead now goes for debt service, and how much of that ends up overseas.
Last year’s $23.5 billion for foreign interest payments was 50% greater than the Reagan Administration’s budget for education, twice as much as what the Navy requested to build new ships, more than half again as great as federal spending on housing and urban development. Even if the federal budget could somehow be balanced and kept that way, a significant share of government revenues would go on being consumed by interest payments on earlier debt. And a good part of that share would continue to flow overseas.
There’s little danger that the budget will soon be balanced. What until 1981 had been a habit of running federal deficits has under Reagan become an addiction. Americans don’t save enough to meet their government’s borrowing needs, so the government looks overseas for its capital needs. The President suggested recently that the willingness of foreigners to finance the federal deficit means that they have confidence in the United States. It means other things as well. Enormous federal borrowing has kept interest rates of all kinds higher than they otherwise would be. Payments to foreigners have also helped finance foreign takeovers of American companies. Last year, according to preliminary figures, foreign buyers spent $40.7 billion to acquire more than 300 U.S. businesses.
Slowly but increasingly, foreign demand on U.S. resources is growing. What’s to be done? The starting point, to use the old Republican rallying cry, must be fiscal responsibility. Federal budget deficits must be slashed, not by phony paper projections but by policies that boost revenues while more tightly controlling outlays. Did we hear someone say tax increases? Not yet, maybe, but for the next President those words are inevitable.
