Next debt crisis could pulverize U.S.
Frank Ahrens, The Washington Post
A private-equity billionaire, a former federal government official and a Baltimore newsletter editor have made a documentary film that they hope can do what an endless parade of policy papers has not: persuade Americans that debt has created a looming economic crisis that would make the Great Depression look like a market correction.
The movie, “I.O.U.S.A.,” debuting Thursday, is an 87-minute alarm on what it calls the tsunami of debt bearing down on the United States' future, caused by the rising national deficit, the trade imbalance and the pending costs of baby boomers cashing in on entitlements.
Early reviewers have dubbed the film “An Inconvenient Truth” for the economy, meaning it's not exactly the feel-good movie of late summer 2008.
Except for budget wonks in love, it hardly counts as a date movie. The film's thrilling action sequence has a guy going to a refrigerator for a Tab. There are no car chases, and nothing blows up.
Except, possibly, for the entire economic future of the United States.
“I.O.U.S.A.” offers up as its action hero David M. Walker, former head of the Government Accountability Office. With movie-star looks that scream “accountant” rather than “Terminator,” Walker has been the Cassandra – or Chicken Little – of America's growing deficit for some time.
Last August, he compared the United States to the final days of ancient Rome, which he said was militarily overextended and fiscally irresponsible. Since 2005, Walker has been traveling the country on the catchy-sounding “fiscal wake-up tour,” preaching his apocalyptic message to half-empty rooms, at least at the start. The tour picked up steam after Walker's message was featured in a “60 Minutes” piece in March 2007.
In March, Walker resigned from the GAO so he could be even more vocal on the debt crisis, becoming chief executive of the newly formed Peter G. Peterson Foundation, set up by Peterson, billionaire co-founder of the Blackstone Group, a major private-equity player.
Their message: You probably know that the national deficit stands at $9.6 trillion and rising. What you don't know is how bad things really are. If you include all the unfunded entitlement obligations – Social Security, Medicare, Medicaid and so forth – we are actually in a $53 trillion hole, Walker says.
And it will only get deeper as we get older.
In an interview, Walker is full of grim one-liners, such as: “The debt has increased our risk of being held hostage by foreign lenders” and “Our situation is serious, and it is deteriorating with the passage of time” and “The financial condition of the U.S. is worse than advertised.”
The nation's debt now accounts for 66 percent of the gross national product. But unless things change, the film argues that the cost of aging baby boomers will push that proportion to 244 percent by 2040, twice what it was at the end of World War II, our highest level of national debt. A debt that high “could create real political instability” says super-investor Warren E. Buffett says in the film.
At this point in the movie, we're wishing we'd rented “The Towering Inferno” instead. Happier ending.
The film generally skirts specific solutions – it does not recommend one form of Social Security reform over another – but suggests broad entitlement overhaul, tough budget controls, conservation of energy and, at the no-duh level, not buying things you can't afford. In the interview, Walker said that tax deductions and exemptions will have to be reduced and a national consumption tax should be considered.
“It's inevitable there will be some tax increases on fat cats like myself,” Peterson said in an interview. “But any idea you're going to solve most of this problem with taxes is not realistic.”
Not everyone agrees that the United States is headed off a credit cliff.
There's Arthur Laffer, for instance, author of the famous Laffer Curve, which says that if taxes rise too high, people lose incentive to work. Laffer argues that as long as the debt level stays where it is, it can be financed down over time, like a homeowner with a mortgage.
“Arthur Laffer said to me, 'Addison, I'm not a debt guy,' ” said Addison Wiggin, executive producer of the film and editorial director at Baltimore's Agora Financial, a research firm and publisher of investment advice.
“But that doesn't take into account everything that's coming down the pike,” said Wiggin, co-author of the 2005 book, “Empire of Debt.”