Domenici, Rivlin say debt must be dealt with now

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Former U.S. Sen. Pete Domenici speaking Thursday in Las Cruces. (Photo by Heath Haussamen)

Domenici says the United States has 3-5 years to address the problem; failure to do so could have ‘drastic and dramatic’ consequences

Policymakers must address the United States’ growing debt problem now or the nation could face dire consequences, two national leaders of the debate about the issue said Thursday in Las Cruces.

The good news, former U.S. Sen. Pete Domenici and economic guru Alice M. Rivlin said, is that the recent deal to raise the debt ceiling provides what may be the perfect opportunity to do just that.

The compromise legislation creates a supercommittee of 12 lawmakers charged with coming up with at least $1.2 trillion in spending cuts. The committee can add entitlement reform and revenue raisers to its deal and, because of wording in the legislation, force Congress to vote on the proposal without the possibility of filibusters and the need for a supermajority of 60 votes to pass the Senate.

In other words, the procedural rules that some have used to bog down the work of Washington in recent years won’t apply when Congress considers the supercommittee’s proposal.

“There is an opportunity to do it all now, to legislate this grand bargain,” Rivlin, a former director of the Congressional Budget Office and vice chair of the Federal Reserve, told those in attendance at the Domenici Public Policy Conference. “This is an extraordinary chance. It will take the leadership of both parties.”

“We’re asking them to be bold,” Domenici said. He added that some members of his party want the GOP members of the supercommittee to oppose any deal, but that’s the wrong approach.

“Why should we do nothing when we’re sitting here about to drown and they have an opportunity?” Domenici asked.

Alice M. Rivlin, a former director of the Congressional Budget Office and vice chair of the Federal Reserve. (Photo by Heath Haussamen)

A serious problem

The problem is serious. Domenici, a former chair of the Senate Budget Committee, said U.S. debt has risen in recent years from around 30 percent of gross domestic product (GDP) to around 60 percent. On the current track, by 2050 the debt will rise to somewhere around 250 percent of GDP.

Domenici said we don’t know exactly what would happen if the U.S. debt reached 100 percent of GDP, but he said it would be “drastic and dramatic.” Rivlin agreed.

“If we don’t do something, it could erode our standard of living, reduce our leadership capacity in the world,” she said.

Domenici said the United States could become a “second-rate power” and predicted that policymakers have only 3-5 years to address the problem.

Domenici and Rivlin aren’t talking about eliminating the nation’s debt, which is currently approaching $15 trillion. They argue that the Unites States must reach a point where the economy is growing faster than the debt is increasing, so the debt as a percentage of GDP falls.

Spending cuts, entitlement reform and tax increases

Domenici and Rivlin co-chaired the Bipartisan Policy Center’s recent Task Force on Debt Reduction, which released a proposal for addressing the problem. Both said Thursday that the problem can’t be solved without cuts to discretionary spending, reform of entitlement programs such as Medicare and Social Security, and tax reform that ultimately increases revenue.

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The bottom line: The Republican Domenici and Rivlin, a Democrat, agree that spending cuts, entitlement reform and tax increases are all necessary components of the solution.

Both were critical of anyone in either party who doesn’t acknowledge that.

Domenici called on President Barack Obama to do a better job of educating the public on the need to reform entitlement programs in addition to raising revenues and cutting discretionary spending. Rivlin called on GOP leaders to be willing to consider tax increases, and Domenici agreed.

Both said they hope to hear the president more clearly articulate the need to address all three components of dealing with the debt during the economic policy speech he plans to deliver next week.

20 thoughts on “Domenici, Rivlin say debt must be dealt with now

  1. qofdisks:

    It may be enjoyable to politicize the financial crisis, but when I hear blame ascribed to any party or group,
    I tend to discount such an opinion as not fully informed.

    Three key laws were part of the deregulation that set the table for the financial crisis, and all of them were
    enacted before Bush was elected. The first was the act to deregulate mortgages from being fixed rate only,
    passed by democrats and signed by Carter. The motivation for this was the inflation of the 70s. It might have
    made sense, but the option-ARM, ALT-A, and sub-prime loans would not have been possible without this legislation.

    Next was the Graham-Leach-Bliley Act which was infamously promoted by Graham and the republicans. Democrats
    originally opposed this legislation – until the Community Reinvestment Act enhancements were added to the same bill.
    This proved a deadly cocktail – allow banks to invest and encourage them to lend to high risk individuals.
    GLB was passed by a large margin of republicans -and- democrats ( including Bingaman and Udall ) and signed by Clinton.

    The third foundation piece was the Commodity Futures Modernization Act. We have every right to be angry with this.
    It was sneaked into the appropriations bill, right before Christmas in 2000, without any debate on the house floor.
    The CFMA enabled the unregulated derivatives market. This was also promoted by Graham and Greenspan.
    But they were not alone. Prominent democrat Tom Harkin was key to this measure. As was the support from Rubin, and Obama advisor Lawrence Summers. The measure was signed by Clinton.

    The truth is both republicans and democrats (among a long list of others) are complicit in the crisis.

  2. The Republicans propagandize that the recession and joblessness is due to massive deficits and reckless fiscal spending when in fact, it was a monumental blunder and avarice in the banking system and financial looters during the Bush administration.
    The total lack of supervision, regulation, accountability and blind Ayn Randian trust in the free enterprise system are the main culprits.
    If we just ignore the real cause of this debacle and blame social security and Medicare, we will never recover.

  3. Skeptic, you make some excellent points to ponder. When you say: “Is democracy fatally flawed in that individuals will vote for self interest above the interests of the nation ( from which we derive our liberties and prosperity )?”, I have to think, yes. But hasn’t this always been so in our majority rules, representative democracy?

    I have no way of determinng what is in the interest of the nation as a whole, I only know what my circumstances, views, and perspectives are. The left wing and right wing think their individual interests are those of the nation, so they pursue their narrow agendas at the exclusion of any other ideas or opinions. I do not think (for certain) that my individual interests are the same interests as the nation as a whole, but I have no way of knowing that or what they could be, but why would I vote against my own interests just on the possibility some other agenda is “best” for the nation as a whole. Your rhetoric sounds good, but there is no pactical way to change anything along these lines, for in the end who is to judge what is best for the nation?

  4. I would like to get an opinion form the members of this board about the following:

    An individual should remain independent of any source of funds that deprive you of your personal liberties.

    If your going to take the measure of some government program take the full measure. Look at the benefits and the costs.

    There is no place arond a campfire for quitters. We all have to work the problem are government is in.. Local, State or Federal.

    Good judgement comes form experience. Expreience comes from poor judgement. Just the way it works out.

  5. Sigh.

    We have plans.

    The Domenici-Rivlin plan is quite similar to that of Simpson-Bowles.

    You remember. The commission the president convened then promptly ignored.

    They call for eliminating tax deductions and broadening the tax base and some forms of entitlement reform.

    Those who can do basic arithmetic know what needs to be done.

    We do not lack for plans, but rather we lack for political leadership ( why doesn’t
    the president promote the plans of the commission he himself appointed?).

    And we lack for political following – why do we not make the necessary changes
    ( limiting entitlement spending growth, paying fully for the benefits we receive,
    eliminating the unfair tax exemptions which litter the tax code, etc. etc ) a priority?

    Are we collectively so selfish that we cannot preserve the nation which so benefits us all?

    Is democracy fatally flawed in that individuals will vote for self interest above the interests of the
    nation ( from which we derive our liberties and prosperity )?

    Will politicians pander and poster ( to a gullible and willing public ) cynically putting re-election above the future of the nation?

    If we Americans cannot do the right things, perhaps Americans do not deserve America.

  6. Austerity measures now will deepen and prolong the current recession (depression). The government needs to spend more now to fill in the gap that the private sector has created by outsourcing. Republicans solution to bringing jobs is to make this nation a third world country with third world labor conditions and wages.
    Tax the rich.
    Fair trade, not free trade.
    Let the economy serve the citizens, not the other way around.

  7. Would someone remind me what percentage of the state retirement fund(s) are to be invested in New Mexico by law?

    Also provide me with accurate documenation to what percentage of the investment funds are invested in New Mexico?

    Let me see if the fund managers are following the law.

  8. Ms Wedum. I am not a big fan of public/private partnerships. Just look at some of our great ones like Eclypse Aviation, Advent Solar and this list goes on. All cost us too much money. I prefer a level playing field for various companies. If that is not possible, some type of claw back provision so that cities, counties or states are not stuck with the bill. Ms. Wedum a substantial portion of the investgments held by our state retirement plans for educators were invested in local start ups. This was pushed by the former governor and legislators. No one has indicated what the value of that portfolio is worth…But I bet you it is much less than when it initially was funded. My point is lets not play favorites.

  9. I believe that MJM is advocating more of those “public-private partnerships.” In just seven years of living in NM, I have seen several of these deals fail. The company has just taken the money and then left the state shortly thereafter.

  10. Pete and Alice…what a pair. Please write your memoirs and leave us alone.

    All good things come to an end when you promise too much and deliver too little. Senator Domenici and for that matter Heather Wilson should be telling New Mexicans that we have been “livin large” and now its time to slim down. with our expectations of federal money heading toward the land of enchantment.

    The only way out of the trap in NM is to support the private sector. If as Domenici states the USA has 3-5 years to get it’s fiscal act in order than New Mexico has a much shorter time to address the fiscal tsunami about to hit. Uncle Sam is not going to be in a giving mood!

    So, what ideas do the Democrats have in mind to fill the gap? All I hear from the likes of Ortiz y Pino and Keeher is the state equivalent of TARP….Show voters a plan for stimulating the private sector.

    Republican candidates the same question applies.

  11. There is some truth to the notion that the only party that cares about the deficit is the one out of power.

    That’s why the parties flip-flopped on debt ceiling votes depending on who was pres.

    But there is also truth that this is serious stuff which needs resolving to avoid the end of our republic.

    There is also truth that government spending has a limit.

    For the US, the total government spending (Fed,State,Local) is about 40% of GDP.

    That is not the highest among countries. European nations are at or above 50% of GDP.

    But our future obligations for Social Security and Medicare will easily take us past 50% in the future.

    At some point, this high level of spending reduces market incentive and efficiency.

    And since all government spending ultimately comes from market activity, we are in trouble.

    America has already outlived the democracy of ancient Greece, but financial crises have ended empires and democracies through out history.

    If you love this country’s ideals of liberty and democracy as I do,
    please join me in emerging from party politics and pushing for entitlement reform to help preserve America.

  12. https://sites.google.com/site/erikhawkes/Home/pete-domenici

    Eye on New Mexico – March 6, 2011
    Pete Domenici: The two of us worked for eight or nine months and produced what we of thought was a

    method of getting to where we ought to be as a people if we want to avoid what we think could be a

    tsunami, economic tsunami, a crash, going off the mountain; and that our economy, our dollar, could

    be in trouble. We could just turn into a second rate power.

    https://sites.google.com/site/erikhawkes/Home/-202-trillion-dollars-of-debt
    https://sites.google.com/site/erikhawkes/Home/equities-to-begin-fall-below-2009-low

  13. Others have already said it here about Domenici’s failure to act as when he was Senate Budget Comm Chair. He adds nothing new to the debate, and I doubt anyone listens to him anymore. I can only guess he now has a book in the works.

  14. Everyone is missing the point, which helps affirm the notion that we’re all hosed. Don’t let your partisan leanings ignore the message from this Republican and Democrat. While I found Domenici’s performance under W disappointing (akin to the legislatiure’s under Richardson), they’re saying the right thing now. No one wants to hear it of course. Doesn’t sound like fun to any good partisan. They all want their deal and want someone else to suffer for it. There’s no free ride we need to pay the piper by spreading the pain of cuts and taxes around. Maybe eventually we’ll learn to associate pain and gain and not end up here again, save for another just crisis/war like WWII…. heaven forbid.

  15. Yes, it’s SUCH aserious problem, and will continue to be shouted about– until it is a Republican president who is doing the spending. Probably to start another war and give his buddies sweetheart contracts….

    Seriously, though, it seems the problem is not so much the spending as the fact that we are supposedly now controlling inflation, so that the debt is not becoming worthless quickly enough.

  16. I find it ridiculous that retired politicians know what needs to be done to fix every problem that our country faces, but failed to take any action while they were in office.

  17. A commonly accepted number for US GDP for 2010 is 14.7 trillion dollars. Our debt is not 60% of GDP as stated by former Senator Domenici – it is 100% NOW, which he also said was the danger point. We have been in this shape once before – where the gross amount of debt was 100% or greater than GDP – at the end of WWII.
    The annual deficit is more than 10% of GDP – there are only four times in history when we’ve done that … the Civil War, the two World Wars … and now.

    http://www.usgovernmentspending.com/debt_deficit_brief.php

  18. Heath,

    It is absolutley amazing that Mr. Domenici failed to take action during his tenure on the Senate Budget Committeet when President George H. W. Bush and a Republican-led Congress succeeded in doubling our national debt, and ran up $2 trillion in off the books war debt. He seems like such an honest and responsible guy.

    Oh, and you RE-E-EALLLY don’t want to get me started about the Federal Reserve Bank….