The rapidly increasing U.S. national debt is one of those issues that requires the business community to speak up loudly in Washington, D.C.
While the national net public debt is worrisome today at more than $11 trillion (73 percent of the gross domestic product), it will become an unconscionable $21 trillion (about 85 percent of GDP) in 10 years, assuming 4.7 percent annual nominal GDP growth and a moderation in the growth of Medicare/Medicaid spending compared with previous years.
That’s even with the eleventh-hour “fiscal cliff” compromise struck on Jan. 1. Our income tax system is erratic and uncompetitive, and our entitlement spending commitments will crush the system as the baby-boomer generation retires.
In 10 years, we could be spending a trillion dollars per year just in interest. To put a trillion into perspective, if you had spent a million dollars a day since Jesus Christ was born 2012 years ago, you still would not have spent a trillion dollars. That will be our annual interest bill.
The lack of political will to address our debt problem creates significant uncertainty for companies making investment and hiring decisions. Without resolution, it could doom us to five years of 2 percent real GDP growth and 8 percent unemployment or even worse: another financial crisis.
I agree with those who stress that we must be careful not to damage a fragile recovery. But government must also remember that its role is not only to regulate but to enable business with policies that support business’ ability to invest and hire in the U.S. Sound fiscal footing is an enabler to growth.
The debt problem will be addressed one of two ways. The first is proactively and thoughtfully: the way a great nation does. The second is to wait until the bond market forces us to do it.
At that point, it will not just be a Wall Street problem. If 10-year U.S. Treasury yields hit 7 percent, home mortgages hit 10 percent and car loans 13 percent, it’s a Main Street problem.
The Jan. 1 compromise to avert the fiscal cliff outlined by our leaders in Washington is a small step in the right direction, but overall it’s a missed opportunity to revive our economy and show U.S. citizens, financial markets, the business community and the world that the U.S. can still govern effectively.
Our leaders must get back to the table as soon as possible, put politics aside, and work out a plan that truly will help to expand the economy over the long-term.
We cannot give up now. That’s not how a great nation acts. The components of a better, bigger deal are all there.
The president and the Congress need to speak simply and holistically about the magnitude of the issue and avoid hyperbolizing about tax increases and benefits cuts. The goal must be to inform rather than polarize the public. This would help to advance a solution to our nation’s biggest competitiveness issue.
CEOs need to continue to speak up. Markets may not wait for our political system to get its act together. If the bond market herd moves, it will be too late. Now is not a time for us to be shy.
Many people wonder if the nation’s time has passed. They ask whether the U.S. has lost the political will to compete.
I don’t believe that and neither do most CEOs. I’m encouraged by statements made by Democrats and Republicans that more work still needs to be done. This work must include:
• Agreement on a market-credible plan that reduces the debt as a percentage of GDP and puts it on a downward path.
• Meaningful entitlement and tax reform.
• Addressing the looming debt ceiling.
If this can be achieved, I believe there’s still a chance to build the market confidence and stability that will help to create jobs, deliver a more robust economic recovery, and improve our global competitiveness.
David Cote is the chief executive officer of Honeywell. He will be one of the speakers at a debt-crisis forum sponsored by the Concord Coalition and Fix the Debt on Feb. 11 at 11 a.m. at Saint Anselm College in Manchester.