| Denis Hayes Every so often, an author comes along with a thought so powerful, we feel compelled to continue the discussion. Below you will find the first quote to appear on Starbucks cups as part of "The Way I See It," accompanied by a Q&A session with the man behind the message, environmental advocate, Denis Hayes. |
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 The Way I See It #1"Zeroes are important. A million seconds ago was last week. A billion seconds ago, Richard Nixon resigned the presidency. A trillion seconds ago was 30,000 BC, and early humans were using stone tools. America's national debt is now $7.5 trillion, and it's skyrocketing, even as America's population ages. There will never be a better time to start paying off this crippling debt than today."  Denis, you're best known as an environmental leader and a solar energy expert. Given this opportunity to address the nation, why did you choose to speak to the national debt? America's skyrocketing national debt deeply affects our ability to address every other issue, from protecting the environment to combating terrorism. A bankrupt nation is a weak nation. |
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 Is there a connection between debt and the environment? For starters, our national parks are deteriorating from lack of maintenance, although parks have enjoyed strong bipartisan support since Republican President Ulysses Grant established the world's first national park at Yellowstone. Much of our urban environmental infrastructure—sewage, water, energy, municipal waste, transportation—is literally falling apart. We aren't developing clean, safe, new energy sources that don't cause climate change. We've slashed funding to prosecute those who break laws safeguarding our air and water. And in its desperate search for non-tax revenue, the federal government is radically increasing drilling, mining, and logging on public lands—pillaging even those that are most ecologically fragile. |
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What's the root cause of the debt problem? The cause of debt is always the same: spending more than you have. Let me be clear, here. I'm not a knee-jerk zealot on this stuff. Acquiring a little bit of debt is often a sensible tactic for individuals, companies, and countries. I have a mortgage myself. However, mountainous, persistent, across-the-board debt eventually becomes ruinous. In fact, in January 2004 the International Monetary Fund—which ordinarily watches out for profligate banana republics—warned that the United States is heading toward insolvency. The IMF calculates America's long-term structural debt as a staggering 500 percent of our Gross Domestic Product. Warren Buffet has begun purchasing foreign currencies. Why? Because the dollar is plunging in value. Japan and China, which together own about $900 billion of our national debt, have sharply slowed their purchases of Treasury instruments in recent months. Why should they continue to buy American debt when the dollar is declining sharply against other international currencies? Around Davos and the other watering holes of the international business community, there is a growing fear that America is heading toward a monetary collapse that could take down the global economy. |
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That sounds a little hysterical. Morgan Stanley's chief economist, Stephen Roach—who is not given to hysteria—says, "The day will come when foreign investors simply say 'no' to this arrangement. That's when the dollar collapses, US interest rates soar, and the stock market plunges. Under such a crisis scenario, a US recession would be all but inevitable." Former Federal Reserve Board Chair Paul Volker—who also is not given to hysteria—told the Senate that America has a 75 percent chance of experiencing a currency crisis within the next five years, caused by other nations reducing their purchase of US Securities. Even current Federal Reserve Chairman, Alan Greenspan, concedes that "...at some point foreigners might suddenly lose interest in holding dollar-denominated investments. That could cause foreigners to unload investments in U.S. stocks and bonds, sending their prices plunging and interest rates soaring." |
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Okay, but how imminent do you think these threats really are? Without additional tax revenue, the CBO estimates the ten-year deficit will grow to $6 trillion. All that money has to be borrowed from someplace, and we are currently borrowing most of it from Asia and Europe. But the crumbling dollar makes those lenders very nervous, and at some point they will start repatriating their money. When they begin shifting to euros and other more stable currencies, America will have no choice but to radically raise interest rates in an effort to make its bonds attractive. A dramatic rise in interest rates would have widespread consequences. Remember, we've been incurring this mountain of debt while interest rates have been at rock bottom. As interest rates rise, the national debt will be much more expensive to service. Remember, too, that we have myriad other financial obligations that will complicate our efforts to get back on a sound financial footing. The elephant in the living room is the Medicare gap—somewhere between $30 and $50 trillion in long-term unfunded entitlements. Health care generally, with 40 million uninsured citizens and costs compounding at 9 or 10 percent per year, is the toughest financial problem we face. Then there is the Social Security gap—somewhere north of $5 trillion. That's huge, but it's a long-term problem and very manageable if we act now. There are lots of proposals—good and bad—to solve it. Finally, we need to remember consumer debt, which has doubled over the last ten years to more than $2 trillion—$20,000 per household—not including home mortgages. When you add in mortgage debt, individual debt is about $10 trillion. On top of everything else, American consumers are buying about $600 billion more of foreign goods and services each year than American companies are selling abroad. This "current account deficit" provides the dollars that other nations have been using to underwrite our federal debt. But with the dollar declining and the federal debt exploding, some are beginning instead to invest that money buying large ownership stakes in our fastest growing companies at 70 cents on the dollar. Whatever one's views on global economic integration, foreign owners are likely to be even less hesitant to outsource jobs than American owners are. |
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So what do you think should be done? As Herb Stein famously said, "If something cannot go on forever, it will stop." Massive debt, accumulating at an accelerating rate, is the quintessential example of something that cannot go on forever. America needs to get serious about living within its means. We should undo the recent tax cuts, including the inheritance tax, and we should then cut current spending enough to balance the budget. We should make intelligent reforms in health care, modeled upon successes in places like Oregon and Sweden. A federal board should invest a portion of the current surplus in the Social Security Trust Fund in stock and bond index funds – and we should stop using Social Security funds to finance the national debt. Americans should sharply rein-in our consumption, and we should invest in education and productivity and basic research. Basically, unless we start right now to pay our own way, we will pass on a crushing debt to our children. This was not the legacy my generation intended to leave. |
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Please note: The opinions put forth by contributors to "The Way I See It" do not necessarily reflect the views of Starbucks. We welcome your response to Mr. Hayes' comments. |
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