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Heeding Wake-Up Call Could Mitigate Debt Crisis

President Obama's fiscal commission begins its final round of meetings Tuesday, which may or may not produce a plan to cut the nation's growing debt.

President Obama walks at the White House with presidential debt commission co-chairs Erskine Bowles (left) and Alan Simpson.
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Above: President Obama walks at the White House with presidential debt commission co-chairs Erskine Bowles (left) and Alan Simpson.

In preparation for the National Commission on Fiscal Responsibility and Reform's report, NPR has been borrowing a page from Charles Dickens.

There have been the ghosts of the past that shaped the debt, as well as the partisan spirits of the present that lock the debt in place. There are two alternative visions of the country's fiscal future.

The Ghost Of The Future

"You're the ghost of Christmas yet to come. You'll show me the shadows of things that have not happened, but will happen in the time before us. Ghost of the future, I fear you more than any specter I've seen." — Ebenezer Scrooge in A Christmas Carol

The budget watchdogs who've been trying to scare us about the nation's debt have a pretty good idea of how this ghost story ends. But what they don't know is when it will end.

Robert Reischauer, a former director of the Congressional Budget Office, says the crisis could come in 18 months or 18 years. Either way, he finds it frightening.

"When countries get into trouble, the waters are relatively calm until the wind comes up," he says. "The wind comes up very rapidly, the storm develops and the ship sinks a few days later."

Former Wyoming Sen. Alan Simpson, who co-chairs the presidential commission, told a similar tale at a breakfast organized by The Christian Science Monitor. He said debt troubles, when they come, tend to strike suddenly.

"It won't be the old slippery slope crap that we read about," Simpson says. "It'll be very swift and very dramatic, like in Greece or Ireland or Portugal or Spain or wherever. I don't know where this is going, but I tell you, it won't take long."

The Threat Of A Rescue For The U.S.

If lenders suddenly lost patience with a federal government that has been spending beyond its means, then interest rates — for the government and other borrowers — would rise.

It would be harder to find loans to buy a house, run a business or send a kid to college. Reischauer says the scariest moment would come when the U.S. has to look to other countries for a rescue.

"How will we feel when the IMF comes to us and says, 'To provide this loan to you, we want to see your taxes go up by a quarter,'" he says. "'We want you to cap your entitlement spending. We want you to shave your defense budget.' That will go down very hard in the United States."

Like a family maxed out on credit cards and ducking calls from bill collectors, the government would have to spend more and more of its budget just paying interest on the debt.

There would be nothing left over for extras or investments in long-range opportunities. This is the frightening picture of a deadbeat nation.

A Wake-Up Call

"Are these shadows of things that will be? Or are they shadows of things that may be only? Eh?" — Scrooge

Like Scrooge, we're getting a timely wake-up call, and a chance to change our ways.

There is an alternate ending to this story, in which members of the president's fiscal commission actually agree on a debt-cutting plan.

In a surprise twist, Congress goes along. Lawmakers cut spending, including defense and future Social Security payments. And they increase tax revenues — not by raising rates, but by eliminating some very popular deductions.

Of course, none of this happens right away. The recovery is too fragile for any sudden changes. But Reischauer says the country would benefit just by having a plan in place to cut the debt to a manageable size.

"There would be probably a big boost of confidence in world markets," he says. "There would be a sense of vitality in the U.S. economy."

With a lighter burden for interest payments, the government would have more money to invest in productive areas like education or infrastructure.

A Happy Ending With A Compromise

Economist Diane Lim Rogers, who writes the blog EconomistMom.com, says countries, like households, are better off when their budget is under control.

"When you don't max out on your credit limit, you do have the capacity to borrow for when you really do need it...natural disasters, wars [and] economic downturns," she says.

This happy ending to our debt story might seem far-fetched, given today's polarized political climate. But Rogers reminds us, we've seen this kind of budget compromise before, as recently as the 1990s.

"And that didn't come easy and people were afraid of this prospect of raising taxes and cutting spending," she says. "But what we learned from that is when the government saves more, then our country as a whole saves more — that contributed to a strongly growing economy."

So far, lawmakers have shown more fear than faith. So, it will be up to the public to decide whether heading off a future debt crunch is worth some tough choices now or if they simply want to say, "Bah, humbug."

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