Is a U.S. Default Inevitable?

As President
Bush prepared to invade Iraq in September 2002, the head
of his economic policy council, Lawrence Lindsey
publicly estimated such a war could cost $100 billion to
$200 billion.

Lindsey had
committed candor, and the stunned Bushites came down on
him with both feet.


said Donald Rumsfeld. The likely cost would be $60
billion, said

Mitch Daniels of the Office of Management and Budget
We can finance the war with Iraqi oil, said

Paul Wolfowitz

By year`s end,

Lindsey was gone
, back, in

Ronald Reagan`
s phrase,
"testing the
magic of the marketplace."

And the cost of
the Iraq War? It has passed $1 trillion.

So Lindsey is
worth listening to. And he is now saving that the
Obamaites may be wildly underestimating the deficits
America is going to run in this decade. Here is why.

The average rate
of interest the Fed has had to pay to borrow for the
last two decades has been 5.7 percent. However,
President Obama is projecting the cost of money at only
2.5 percent.

A return to the
normal Fed rate would, by 2020, add $4.9 trillion to the
cumulative deficit, says Lindsey, more than twice the $2
trillion in savings being discussed in Joe Biden`s
debt-ceiling deal.

Second, Obama is
estimating growth in 2012, 2013 and 2014 at 4, 4.5 and
4.1 percent. But the normal rate for a mature economy
recovering from recession is 2.5 percent.

Hence, if we
return to a normal rate of growth, rather than rise to
Obama`s projected rate, says Lindsey, that would add
$700 billion to the deficit over the next three years
and $4 trillion by 2020.

Taken together,
a U.S. return to a normal rate of growth of 2.5 percent,
higher than today, and a normal rate of interest for the
Fed could add as much as $9 trillion to the deficits
between now and 2020.

New taxes on
millionaires and billionaires who ride around in
corporate jets can`t cover a tenth of 1 percent of these

Writes Lindsey
"Only serious
long-term spending reduction in the entitlement area can
begin to address the nation`s deficit and debt

His conclusion
is logical, but seems impossible to achieve when both
parties are talking of taking Medicare and Social
Security off the table. Which makes his final point all
the more compelling:

"Under current government policies and economic
projections, (bondholders) should be far more concerned
about a return of their principal in 10 years than about
any short-term delay in interest payments in August."

Lindsey is
saying that the probability of U.S. bonds losing face
value through inflation or default is high, given the
size of the deficits we will be running and the
improbability that any deficit-reduction plan now out
there can significantly reduce them.

Standard &
Poor`s and Moody`s are already talking of downgrading
U.S. debt if the debt ceiling is not raised by early

Is America then
headed for an inevitable default?

One Chinese
economist is already accusing us of defaulting, as the
Fed`s flooding of the world with dollars has seen the
dollar lose 10 percent of its value against other
currencies in the last year.

Holding $1
trillion in U.S. debt, China has watched the purchasing
power of that U.S. paper plummet. Understandably,
Beijing fears that if we ever pay back all they have
lent us, it will be in U.S. dollars of far lesser value.

What should
House Republicans do?

Stick to their
principles and convictions.

For the cause of
the deficit-debt crisis has been the explosion in
federal spending under Barack Obama to the largest share
of the U.S. economy since the climactic years of World
War II.

of both parties contributed to this rise in the federal
share of gross domestic product. But the GOP committed
itself in 2010 to rein it in, without raising taxes. On
that pledge the GOP triumphed and should keep its

First, because
it is a solemn undertaking with a nation disgusted with
politicians who say one thing and do another. Second,
because our fiscal crisis, like Europe`s, is a result of
too much government, not too little revenue. Third,
because there is no credible school of economic thought
that says raising taxes on the productive sector when
one in six workers is unemployed or underemployed is the
way to prosperity.

Under Obama
these past two years, the nation relied on the U.S.
government to pull us out of the ditch. But Obama`s $787
billion stimulus, his three deficits of 10 percent of
GDP, and Ben Bernanke`s tripling of Fed assets by buying
the bad paper of big banks and $600 billion in U.S. debt
all failed.

For Republicans
to agree now to a tax increases that would violate their
principles, their promises to the voters and their basic
philosophy—and be icing on the cake of Obama`s
debt-ceiling increase—would be politically suicidal.

Indeed, were the
Republican Party to do this, it would raise the question
of why we need a Republican Party.



Patrick J. Buchanan


no introduction
VDARE.COM readers; his book
of Emergency: The Third World Invasion and
Conquest of America
, can
be ordered from His latest book

is Churchill,
Hitler, and "The Unnecessary War": How
Britain Lost Its Empire and the West Lost
the World,



Paul Craig Roberts.