The coming debt crisis

We all know about the current fragile state of the economy. What is quickly becoming evident is that our nation's longer-term fiscal picture is even more precarious because of mounting government debt and the unwillingness of our elected leaders to address it.

I've seen the results of economic crises first-hand and they are not pretty. I was the U.S. Ambassador to Mexico during the 1994 Mexican peso crisis. Mexicans' standards of living were cut in half overnight and now 15 years later the middle class still has not been fully repaired.

Before that, representing Oklahoma in the House of Representatives, I served as chairman of the Budget Committee during the turbulent economic period of the 1980s.

Those experiences convinced me that we must now realize that our nation's short-sighted fiscal policies leave us vulnerable to our own debt crisis. The federal debt is almost $8 trillion and rising. Without policy changes, it will climb to unsustainable levels and debilitate the economy.

Under reasonable assumptions, debt is projected to grow to 85 percent of gross national product by 2018, 100 percent by 2022, and 200 percent in 2038. That is a prescription for financial calamity. Eventually, investors will lose confidence in our ability to manage our finances and will not buy U.S. securities.

The likely results are higher interest rates, lower wages, and slower economic growth and job creation. That crisis would result in Americans being unable to find credit to purchase homes, buy cars or send their kids to college.

To avoid such a calamity, we require the sort of political courage that so far has been lacking in Washington. Several distinguished colleagues and I are serving on the bipartisan Peterson-Pew Commission on Budget Reform. We recently released a report, Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, which details the coming debt crisis and proposes a six-step plan to address it.

The commission recommends that Congress and the President commit now to stabilize the debt at 60 percent of GDP by 2018, develop a credible package over the next year to attain that goal, begin phasing in the plan in 2012, implement a "debt trigger" automatic mechanism to ensure that the process stays on track, and continue to reduce the debt as a share of the economy after 2018. This is an ambitious, yet attainable, solution.

Our leaders face a great challenge but it is not insurmountable. We must be committed to reducing the debt. The longer we wait, the harder it will be on all of us and on our children and grandchildren.

James R. Jones is commissioner on the Peterson-Pew Commission on Budget Reform. Jones served as U.S. Ambassador to Mexico from 1993 to 1997. Prior to that he represented the First District of Oklahoma in the U.S. House of Representatives from 1973 to 1987, serving as chairman of the House Budget Committee.

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