Connecting the dots to Iraq: how will Bush deal with the deficits?

• Author: Freeman, Robert
• Position: George W. Bush

Republican hearts are all aflutter over one quarter of strong GDP numbers.

But the 8.2% third quarter growth was purchased on credit--the $374 billion budget deficit that was the largest in the country's history. All indications are that next year's deficit will be even larger, exceeding half a trillion dollars.

There is simply no magic to "growth" under these conditions. Any idiot with a hand full of credit cards charged to the next generation's children can gin up the short term illusion of prosperity. Until, that is, the bills come due.

George W. Bush inherited a $127 billion fiscal surplus but ran through all of that and more in his first year. He has turned a $5.6 trillion 10 year forecast surplus into a $3+ trillion forecast loss--an almost unimaginable reversal of $9 trillion in only three years. And this in an economy that has grown for 10 of the last 12 quarters.

The result of this almost psychotic profligacy, according to the Congressional Budget Office, will be a national debt of $14 trillion in 10 years. Interest payments alone will approach a trillion dollars a year and will exceed spending for all discretionary federal programs combined. Even more surreal, a study commissioned by former Treasury Secretary Paul O'Neil indicated that the 50-year forecast US deficit would reach $44 trillion.

The study was suppressed. O'Neil was fired.

How does a nation deal with debts that so greatly outrun its ability to pay? There are basically only five strategies. All are unappealing. Most are calamitous.

The most difficult strategy is, not surprisingly, the honest one: raise taxes and pay your bills. This is what King George III did following the Seven Years War with France in 1763. England had quadrupled its national debt in fighting the war and needed money to pay it off. It turned to the richest people in the realm, the colonists, and began taxing paper, glass, paint, lead, and, of course, tea. The result, as we know, was the American Revolution.

It was the same strategy--raising taxes on the rich--that Louis XVI attempted in 1789. The French national debt had grown 10 fold under the pharaonic opulence of Louis's grandfather, Louis XIV. Louis called the nobility and the clergy together and told them they would have to ante up. They, after all, had been exempted from taxes by Louis XIV in order to buy their complicity in his autocratic reign. Indignant, they refused to pay, precipitating the French Revolution, the most explosive upheaval to established government in the last thousand years.

A second strategy to deal with excessive debts is simply to print money.

This is what Weimar Germany did to address the crushing debt imposed by the vengeful Treaty of Versailles. Before it was over the government had inflated the money supply by over a trillion times, leading some to comment that it was a waste of ink to put it onto paper worth so much less than the ink itself. The German middle class, whose assets were held at fixed amounts in government pensions, was destroyed. The collapse gave direct rise to Adolph Hitler.

A third strategy for dealing with onerous...