EagleTribune.com, North Andover, MA


February 16, 2013


Fiscal conservatives unwittingly sabotage themselves by warning that the $16.5 trillion national debt will impoverish America’s children and deliver unborn grandkids directly into Chinese slavery. While these dire predictions may come true, calling America’s massive indebtedness a challenge for future generations triggers relaxation about an immediate priority: curtailing federal spending and borrowing. By defending “the children,” budget hawks let big spenders invoke Scarlett O’Hara to justify their profligacy, at least until the tykes mature. “Cut the budget later,” spendthrifts propose. “Tomorrow is another day.”

Unfortunately, annual deficits and the accumulated national debt are harming American adults right now.

Uncle Sam is a morbidly obese glutton with a bottomless appetite. Once he has waddled away from the buffet table, little remains for everyone else but breadsticks and several drops of soup.

David Malpass, a New York-based economist with Encima Global LLC and a former Reagan administration Treasury official, understands how Washington crowds out private-sector borrowers in order to finance reckless spending and service yesterday’s debt.

Back in December 2009, Malpass explained in The Wall Street Journal how the Federal Reserve’s purchases of Treasury bonds and mortgage-backed securities caused capital to be “rationed not on price but on availability and connections. The government gets the most, foreigners second, Wall Street and big companies third, with not much left over.”

Consequently, Malpass added, “for small businesses and new workers, capital rationing is devastating, spelling business failures and painful layoffs. Thousands of startups won’t launch due to credit shortages, in part because the government and corporations took more credit than they needed. ...”

Three years hence, the conditions that Malpass lamented linger like an unshakable low-grade flu.

Between the end of September 2011 and the same date in 2012, total outstanding federal debt grew 12.3 percent, while corporate debt expanded by 5.9 percent. Among non-corporate businesses, it fell 1.2 percent. For households, it dropped 1.9 percent. This is anomalous, Malpass notes, since “small-business credit has usually expanded at a faster rate than corporate credit.”

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