Senator Coburn Talks Turkey...

by: Les Carpenter
Rational Nation USA
Liberty -vs- Tyranny

Sen. Tom Coburn (R-Okla, who served on the Simpson-Bowles commission, and is a member of the Gang of Six has a new book out entitled The Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America . Senator Coburn recently was interviewed by Ezra Klein of The Washington Post To discuss the nation's growing debt and economic growth problems. The following excerpts are from the first of what is to be a two part series. The second part will be coming out later this week. For those truly interested in solutions to our crushing fiscal problems this is a series you will want to follow. While you may not agree with everything the Senator has to say it is difficult to find a more reasonable, and reasoned voice amidst today's super heated rhetoric.

Ezra Klein: So ‘taxmageddon’ is coming at the end of the year. Depending on how you look at it, it’s an opportunity for Congress to trigger a massive and unnecessary fiscal crisis, or to actually get some serious legislating done on our long-term fiscal issues. Are you optimistic about the outcome?

Tom Coburn: No. But it depends on what the mix is. If President Obama is still president and we’re in control of the Senate, I think you’ll see significant attempts to get something done. But I don’t think they’ll be much more successful than what we saw in August. And I wouldn’t consider that very successful. If Romney wins and we win control in the Senate, we have to send a signal that we’re going to fix it in order to take away all that potential risk to the economy. You have to say we’ll work all over the Christmas holidays to get it fixed.

EK: When you look at the Romney scenario, it seems Republicans have spent a few years now learning how to take tough votes on the budget, particularly on the Ryan plan. So if Republicans control the House and Senate, it seems to me that you’d see quite dramatic action on those issues, as they can be passed with 51 votes through budget reconciliation.

TC: Well, you can. Ryan has a good plan. I don’t think it goes fast enough. But the fact is he’s got a plan. The president won’t put out a plan. The Senate Democrats won’t put out a plan. It’s kind of like boxing with a shadow. You can’t ever hit it. But it doesn’t matter if you’re Democrat or Republican. The pain will get worse every year we don’t fix these things. And there will come a time when it won’t matter if you’re a Republican or Democrat. And I don’t have much faith right now that we’re up to the task of coming to agreement to fix this.

EK: I want to come back to the question of the plans in a second,. But your book opens by imagining a very dire fiscal crisis in 2014. And this goes to your contention that Ryan’s plan doesn’t bring down the debt fast enough. Where do you get the urgency of your schedule? I look at Treasuries and they’re selling with very low yields. So you can say that’s just the Federal Reserve manipulating prices. So then I look at credit default swaps on the United States, and there are no alarm bells there, either. I look at countries like Japan and England that have carried on with very high debt levels for a very long time. We’ve seen other countries that control their own currency manage very high debt levels throughout the 20th Century.

TC: Well, you need to go study Japan. They’re going to crash.

EK: People have been saying that for 20 years.

TC: You have two things coming together. This is the first year they’ll be a net issuer of debt outside their country. They’ve totally financed all their debt internally. We haven’t. That’s one big difference. They also have a much lower birth rate. Seven births for every 1,000 people. So their population is shrinking and their demographic shift is much worse than ours. And this year, the postal system there that runs all their retirement accounts will not be buying any government debt. Zero. So the Japanese government, for the first time, is going into the international market. And the yen’s value is going to decline against every major currency. Whether that happens this year or next year or in three years, it’s going to happen. And they’ve now had almost two decades of no real GDP growth. So Japan isn’t going to make it. The reason they haven’t had any problems is they haven’t asked anyone else in the world to buy their debt. Now they’re going to have to.

The same thing ultimately will happen to us, but we’ll be the last person it happens to. The world still views this as the safest place. You see Greece, which will probably be out of the euro by the end of this year. Then you look at Spain and Italy and Portugal and Ireland. Europe is going to print money just like Ben Bernanke is printing money. And what’s the end result of that? Inflation.

EK Well, it depends how you manage it.

TC: How do you sterilize $3 trillion worth of debt?

EK: The difficulty for me when you say that is I’m a market-oriented guy. I trust the markets, more or less. And if you look at the market’s inflation expectations, they’re not high. They don’t think what the Fed has done will lead to inflation.

TC: They don’t now. But nobody ever does when you print money like that. If you study [Carmen] Reinhart and [Kenneth] Rogoff and what they said, they know what’s coming. Every country that’s ever been with a debt crisis and has printed money has ended up with an intentional inflation problem. Think for a minute that you’re Ben Bernanke. You’re trying to control inflation, jumpstart the economy, and improve the unemployment rate. What do you think his long-term answer for this is?

EK: At the moment, I don’t think he has one.

TC: His long-term answer is inflation.

EK: Not only do I think that would be an okay answer, but Reinhart and Rogoff do, too. Rogoff has been arguing for higher inflation for a long time. But Bernanke says he won’t permit that. And I don’t see a reason he would allow inflation later but oppose it now, when it could really help. In fact, what he’s been saying is he won’t do the monetary stimulus many want now specifically because he doesn’t want to deanchor inflation expectations later.

TC: But 10 years from now, our bonds won’t be two percent. So what percentage of the total budget do interest costs become if you normalize back to the historical average? If you do that today, you add $650 billion to our annual interest costs. How long do you think he can keep two percent inflation? If he does, then we’ll continue to have two percent growth. In other words, if we start getting the growth, then we’ll see the inflation. The reason there’s no inflation now is there’s no velocity to the money. We’ve got $2 trillion sitting on the sidelines with corporations in this country. Another few trillion in personal bank accounts. And the reason is no one has confidence in the future. And it’s not so much the details of the plan to fix it as the psychological confidence it will get fixed. And that’s why I voted for Bowles-Simpson.

EK: When Bowles-Simpson went before the House, it was rejected by a huge bipartisan majority. Do you see there as being any possibility that one outcome of the taxmageddon period could, be a grand bargain in the Gang of Six/Simpson-Bowles vein?

TC: I don’t know the answer to that, frankly. My hope would be we reach a grand compromise. But the vote in the House proves what I said in the book. You had a vote in the House on a plan that could solve our problems and the Democrats didn’t vote for it because it touches Social Security and Republicans vote against it because of revenues. Both sides accentuated their differences rather than sending a signal to the international community that we could get together and cut $4.5 trillion over the next 10 years. Which raises the question: Why are they here? If you’re here just to get reelected, you’re worthless to the country.

EK: You’re searingly critical of Congress in the book. So let me ask you: How do you fix the Senate?

TC: Let the Senate operate the way it’s supposed to. put stuff through committees. bring it up in regular order. Have an open amendment process. I’m the number one amendment offerer in the Senate in the last few years.

EK: Congratulations. {Read More}

One thing is for certain, we either address the debt issue or it WILL bring this once great and powerful economic Goliath to his knees. Watch for the second installment.

Via: Memeorandum