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The financial position of the United States is not too different than that of Greece or other countries in the European Union that are teetering on bankruptcy and need a bail out, one of the Senate's past leaders on financial issues told REALTORS® yesterday.
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Former Sen. Judd Gregg (R-N.H.) said that the financial future of our country is grim if lawmakers don't seriously address the federal government's budget deficit.
Saving the United States from the fate of Greece and the other strapped European countries is its size and the role of the dollar as the global currency. Those characteristics give the U.S. "more running room" than other countries but without those benefits, the Greek situation is "not that different from ours," said former Sen. Judd Gregg (R-N.H.) at the first day of the 2011 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington. Gregg spoke to a full ballroom at the Legislative & Political Forum.
Gregg, a senior member of the Budget and Banking committees when he was in the Senate, says the United States has historically run an average 35 percent deficit, but today that figure is past 60 percent and heading up. The debt is bigger in Japan, but because that country has a high savings rate, the Japanese are able to finance their own debt. The United States, where the savings rate is too low, requires investors from China, the Middle East, and elsewhere to finance much of the country's debt.
Foreign Investors Key
If the country's debt continues to swell, Gregg said, foreign investors will grow wary that the United States will end up inflating away much of its debt, making their investments in Treasury bonds and other instruments far less valuable. That would mean increasingly high interest rates to attract investors, destabilizing the U.S. economy and hammering real estate.
Gregg said both House Budget Committee Chairman Rep. Paul Ryan (R-Wis.) and President Obama have put forward substantive proposals for reducing the debt, in each case by about $4 trillion, but neither plan was developed with bipartisan support. That bipartisanship is critical, since any substantive plan will mean painful cuts to the big entitlement programs like Social Security, Medicare, and Medicaid.
Voters need to see lawmakers working across the aisle on a fair deficit reduction plan, one that spreads the pain around, Gregg said. Only then will voters get behind lawmakers in support of broad cuts to the popular entitlements.
Some Ideas for Fixing It
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Gregg outlined a few key steps that he said would go a long way to getting the country's fiscal woes under control, including freezing cost-of-living increases in programs; cutting discretionary spending, including to the military; and making the big entitlements solvent by, among other things, gradually increasing the age at which benefits kick in. Gregg also talked about reforming the federal tax code to provide incentives for creating economic growth, reforming energy policy, and reforming heath care.
Gregg said he was disappointed that President Obama didn't embrace proposals released late last year of the bipartisan deficit reduction commission. That plan also would cut the deficit by a projected $4 trillion, including in part by reducing the value of the mortgage interest deduction and other itemized deductions for higher-bracket taxpayers.
"We can [reform the budget] now, in an orderly way," Gregg said, "or in four or five years have an economic crisis driven by the world losing confidence in the dollar."
- Robert Freedman, REALTOR® Magazine
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