WASHINGTON — "If our customers are healthy, we are healthy," says Erwin Kelen, president of DataMyte Corp. of Minnetonka, Minn., which sells computer control systems for factories in the automobile, aerospace and food businesses.
But Kelen and growing numbers of other Americans fear that nobody will be healthy if the national debt continues to soar.
Most economists agree: As the debt approaches an unprecedented $2 trillion, it is becoming a slow-acting poison that could sap America's economic vitality. The United States, they believe, is behaving like a free-spending consumer with a wallet full of credit cards who is enjoying the good life while going deeper and deeper into debt.
Cut in Living Standard
"A person can do it for a year or two without serious problems," says economist Leon Taub. "A country like the U.S. with a strong economic base can enjoy things for another five years and maybe 10 years."
But ultimately, says Taub, a consulting economist with Chase Econometrics, "we must cut our standard of living to repay our debts."
Kelen fears that even DataMyte's high-tech niche in the economy will be vulnerable as the debt drains wealth away from his customers--and ultimately from him. He fears it will become prohibitively expensive to borrow the money his company needs to modernize and grow--and create jobs for more workers. In the computer business, Kelen says, "what we sell is innovation," and borrowing makes it possible.
And if manufacturing firms can't afford to borrow, they won't buy DataMyte machines. "Even smokestack industries have to buy computers," Kelen observes.
A Commonplace Ritual
Congressional jockeying over raising the debt ceiling has become a commonplace ritual in recent years. It is the economic consequences of the debt, however, not the political ones, that hang most ominously over the nation. And as long as deficits on the order of $200 billion a year continue to feed the debt, those consequences will get worse instead of better.
To maintain its pace of excess spending, experts warn, the federal government will gorge itself on borrowed funds--money saved and invested not only by Americans but also by foreigners. The federal government, as the borrower who always goes to the head of the line, will muscle aside businesses and consumers seeking loans. As government and private borrowers compete for funds, interest rates will rise--discouraging investment in new machines and factories and blunting consumers' appetites for new homes and cars.
This nightmare, which has been hovering over the economy since budget deficits reached record levels in 1983, has not come true yet. Already, the total savings of individual American citizens and businesses is too small to cover the borrowing needs of the government and the private sector. Because the United States offers the most profitable--and safest--place to do business, however, European and Japanese investors are pouring money into this country.
Inflow of Capital
The inflow of foreign capital is preventing the ultimate debt-related disaster--a shortage of available funds. But it is not without cost. The demand for U.S. investments drives up the value of the U.S. currency--the dollar--in relation to other currencies such as the British pound, the West German mark and the Japanese yen.
That makes imports attractively cheap for American buyers and American-made goods prohibitively expensive to sell overseas, draining profits from U.S. firms and taking jobs from U.S. workers. The governments of the United States and four of its major trading partners have begun intervening in international currency markets in an effort to drive down the value of the dollar.
Besides generating a trade crisis, the burgeoning federal debt also squeezes the activities of the government itself. As interest payments take an ever-growing share of the federal budget, other programs, from building highways to buying jet fighters, inevitably suffer.
Interest payments already have hit $130 billion this year, about 14% of federal spending. These outlays are about twice what the federal government spends for unemployment insurance payments, food stamps, welfare, student loans, highway construction, veterans pensions and mass transit all combined.
A Maddening Prospect
Debt service could consume 21% of government outlays by the end of the decade if deficits continue to accumulate. For voters and members of Congress alike, the prospect is maddening: Instead of doing things for people, the federal government is increasingly taking money from citizens to pay for past borrowing.
The debt has exploded during Ronald Reagan's presidency. It took all of the first 192 years of the republic's history for the national debt to reach $1 trillion. It is taking just five more years to double that unimaginable number: At its current pace, the national debt will reach $2 trillion by next fall.
