The American national debt now amounts to approximately two trillion dollars. The government cannot pay off the principal, but it pays the interest on this mind-boggling sum by collecting taxes and borrowing more money on Treasury securities. The deficit is the annual growth of the principal. At present the interest on the national debt is equivalent to all the Federal income taxes collected west of the Mississippi.
This is only the tip of the iceberg, according to Lawrence Malkin. The total pool of debt in the United States is just short of eight trillion dollars, and much of this could become part of the national debt under certain circumstances. For example, if major third world countries were to default on their colossal debts to United States banks and those banks were about to go under, the government would have to bail them out. This would mean, in effect, absorbing worthless paper into the national debt. Similar scenarios could occur with consumer debt, farm debt, and corporate debt. If the national debt mushroomed, as it easily could in a major recession, the government would have to start printing money. This would lead to runaway inflation and most likely to the collapse of the entire free world economy.
The author attempts to explain the history of this problem and all of its frightening ramifications. A major part of the cause is that the United States has tried to be the world’s banker and the world’s policeman while at the same time attempting to maintain a high standard of living. It is the American people’s standard of living that is now suffering, in some ways that are obvious and in others that are more insidious.
Lawrence Malkin has been a financial reporter for TIME magazine for the past fifteen years. His experience has taught him to write in the crisp, vivid style associated with TIME and to focus on personalities rather than cold fact. He has a journalist’s proclivity, however, for treating information as an end in itself. He apparently does not feel qualified to make any final diagnosis or to suggest a cure for the nation’s most important affliction. He leaves no doubt, however, that the presidential candidates of 1988 will not be so reticent.