In The American Spectator, Garland S. Tucker III reports on former Treasury Secretary Henry Paulson’s warnings about America’s credit quality. Tucker writes:
Former Treasury Secretary Henry Paulson issued a stern warning in last week’s Wall Street Journal: “A world-class financial system can’t exist in a country that fails to maintain the quality of its credit.”
America’s debt problem was already wildly out of control for the past 20 years, but we now face truly unprecedented additional levels of debt issued by Congress in response to the pandemic. From 2000 to 2019, the federal debt rose from $5.6 trillion to $22.7 trillion, and it is expected to top $27 trillion by year’s end, a whopping 19 percent increase this year. Another trillion in virus relief spending now seems to be at the low end of spending estimates going into 2021.
With interest rates at historic lows, the U.S. faces a crisis at some point in the future. If (when) interest rates return to more normal levels, the country will be bankrupt — unable to pay even the interest on its mountain of debt. This looming debt crisis is three-dimensional: moral, economic, and political.
The economic danger is more obvious. Paulson warned, “[A]s the debt level grows, the attractiveness of U. S. debt will gradually decline…. [T]he dollar will be debased. Washington won’t be able to pay its bills.” Our ability to roll over our existing debt is already heavily dependent on China’s purchases of our paper. Paulson commented plaintively, “Let’s hope that China doesn’t rethink the wisdom of its Treasury holdings.”
Finally, there is very real geopolitical danger. It becomes daily more evident that the greatest challenge to U.S. world leadership — economically and militarily — is from China.