This week on Facing the Future, former U.S. Senator Rob Portman (R-OH) discussed the nation’s growing debt burden, the consequences of inaction, and the case for a new fiscal commission. He also warned that attempting to compromise the Federal Reserve Board’s independence would harm the economy and the budget.
Portman’s experience with the federal budget includes the perspective of an executive branch official, serving as Director of the Office of Management and Budget in the George W. Bush administration, and as a member of the legislative branch, serving two terms in the U.S. Senate and six terms in the House of Representatives. He has grown increasingly concerned about the nation’s fiscal path.
“We are going into uncharted territory now and that’s what worries me the most,” he said. “We’ve never had sustained deficits annually at this level; 6% of GDP is the number we’ve had the last few years. And so, you’re talking about well over a trillion dollars in deficits every year, and a $38 trillion debt. Once before in our history, we had a debt that approached these levels as a percent of the GDP and that was the year after World War II. We were immediately able to pull back on that discretionary defense spending, and get back closer to balance. But otherwise, we are at levels that are unprecedented.”
Portman expressed concern about the consequences of such high debt. “If you had a financial event right now because of our very large debt and deficits, and in the bond market there was a decision to require a higher interest rate in order to invest in America – because remember, these people are financing our debt – all they have to say is, ‘I need to get a higher interest rate because it’s such a risk, it’s such an out-of-control fiscal situation.’ That means your car loan is going to go up. That means your mortgage payment is going to go up. That means your cost of living is going to go up dramatically. It also, in turn, will cause more inflation. It’ll cause wages to be less high than they would have been. It’ll cause our economy to be weaker. This does affect all of us as citizens. It’s an issue that members ought to focus on.”
Portman warned that addressing the debt problem will only get more difficult if the independence of the Federal Reserve Board is compromised. “You’ve got to have a Federal Reserve that is respected, and that is viewed as independent, and is viewed as credible, if we are to keep a financial crisis from occurring,” he said.
A crisis could be precipitated by “a sense that the Fed’s not independent,” Portman said. “That has a big impact on the bond markets, and the concern would be that it’s a politicized organization” leading to concerns about interest rates and inflation.
“So all this stuff about the criminal investigation of [Fed Chair] Jerome Powell is not helpful. It’s a huge problem if the Justice Department is viewed as a political entity and being exploited in a way that would lead to the Fed making decisions that they otherwise wouldn’t make with the threat of a criminal investigation and criminal subpoenas and potential criminal indictments. It’s a disturbing occurrence because the independence of the Fed is an important part of us getting out of this fiscal mess that we’re in,” Portman commented.
On the positive side, Portman pointed to two recent initiatives in the House. One of them, sponsored by leaders of the Bipartisan Fiscal Forum, is a proposed resolution establishing the goal of cutting the deficit to 3% of GDP, essentially cutting it in half, by 2030. Portman noted that Secretary of the Treasury Scott Bessent also favors that goal. “Obviously,” Portman said, “we need to go further than that, but to get to 3% of GDP would be a big improvement, and the markets would react favorably, including the bond markets. It would drive interest rates down, not up.”
The other positive development Portman noted is a fiscal framework endorsed by the bipartisan Problem Solvers Caucus that includes the idea of a new fiscal commission. Portman favors “a congressionally mandated commission that would be some members of the House, some members of the Senate, some Democrats, some Republicans, maybe some outside experts. And they would be charged, over a period of time, say one year, with coming up with recommendations. I would love to see them first have the responsibility to explain to the American people why it’s so important to address this issue, talking about interest rates and inflation, and talking about the cost of living and wages and all the impacts that our current situation is affecting negatively. You put everything out there, the spending side, the revenue side, and do it in a thoughtful bipartisan way and then present it to Congress for an up or down vote.”
Hear more on Facing the Future. Concord Coalition Senior Advisor Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
