In today's Follow the Money: as a nation, we now owe $21 trillion dollars. And, since the country spends more than it takes in, the debt keeps growing. Economist Peter Morici says our political leaders are taking big risks and haven't learned much from past mistakes made in the 2008 fiscal crisis.
Sharyl Attkisson: Under both the Bush and Obama administrations, it was said the banks were too big to fail, which I take to mean that regardless of any misbehavior they did, we would have to bail them out and make sure they survived.
Peter Morici: We had very large financial entities failing and they couldn't be merged into other entities very easily. And with that, the system came apart. Could it happen again? Absolutely. The big banks are even bigger than they used to be.
Sharyl Attkisson: You have said if the fiscal crisis could happen again, much the same way.
Peter Morici: Well, it has to do with people borrowing more money than they can pay back. And now the biggest borrower is the federal government. We owe too much money to foreigners and we're getting close to the point where we're as in debt to foreigners relative to the size of our wealth in the economy as the Greeks, the Spaniards or the Irish were when their economies failed. Now, with the federal government running 1 trillion dollar deficits, we see that foreign creditors are starting to look a little askance at American bonds. When the Treasury securities went up and interest rates recently, foreign borrowers didn't rush in to scarf them up the way they have in the past. They're starting to assess that the US treasuries have more risks than before because Washington owes too much money.
Sharyl Attkisson: I have literally heard people, including politicians say, we can always just print more money if we need it.
Peter Morici: We can print money to cover our debts, but in doing so, we will inflate the economy that really would cause inflation very much like the Weimar Republic, during the 1930s in Germany.
Sharyl Attkisson: What happened there?
Peter Morici: We had hyper inflation. Prices flew out control like we had in Latin America, for example, in the 1980s and 90s. And once that happens, money has no value and economy cannot function properly and you have wholesale breakdown.
Sharyl Attkisson: Does the tax cut impact this equation?
Peter Morici: Absolutely. Essentially, the tax cut gave people back 150 billion dollars a year and about you can expect that additional economic growth will net you back 85 billion tops. So you're still out 65 billion each year adding that much more to the deficit. But on top of that, we had the congressional budget deal. The Republicans wanted to spend more money on defense, but the Democrats said we won't vote this way unless you give us more money for entitlements. So we did, you know, as a consequence the budget deficit continues growing. But that's where the real problem is, is that they can't control spending.
Sharyl Attkisson: There was a time not long ago when maybe neither party did much about the debt and deficit, but at least the Republicans talked about it. I don't hear either party talking much about it at all. Do you?
Peter Morici: Well, they do. The Republicans are deficit hawks when they're out of power, but they spend money pretty freely when they're in power. The Democrats talk about it a little bit, but never when they have the reins of power. The federal government is now spending about two thirds of the revenue it takes in on entitlements of various kinds and interest payments. Within the next five to 10 years, that'll be 100 percent. That means the federal government will have to borrow money just to keep the lights on in the Capitol Dome. We might not like going through Greek austerity, but the political parties not willing to be reasonable about entitlements in defense spending and so forth are taking us down the road to hell.
The last time America had a zero balance, no national debt, was under President Andrew Jackson in 1835.