I just read a recent Letter to the Editor in the Wall Street Journal from a Francis X. Cavanaugh, “founding chief executive of the Federal Retirement Thrift Investment Board.” I guess his title allows him the ability to be an ignorant elitist, mocking the alarm of the ordinary American with the current amount of crushing US debt.
Mr. Cavanaugh writes that the “concern that ‘we have borrowed so heavily from future generations’ is baseless.” Baseless. Really Mr. Cavanaugh? As if anyone concerned with debt is a poor, uneducated, silly, misunderstood citizen, and all the smart federal people know and understand that the debt will never be paid off, never needs to be paid off, and therefore is a non-issue. How utterly wrong.
In his economic ignorance, Mr. Cavanaugh must be assuming that, as with major corporations and other organizations with indefinite lives, debt can be a part of a permanent capital structure, so there is no need to actually pay it off. But in order for the debt to be rational, it needed to be incurred to acquire something with ongoing benefit – such as land or equipment whose ongoing use will justify the ongoing debt service to pay for it.
That is the difference between the federal government and other entities that will maintain “permanent “ debt. Corporate permanent debt has funded capital improvements that will provide benefits into the future. They would never use debt to fund current operations, because this would burden future activities with having to pay back unproductive debt. In contrast, federal debt is funding only operating deficits – paying for more vote-buying crony-building current goodies than our tax receipts could provide – and which will need to be paid back by our children and grandchildren who will have received none of the goodies.And the cumulative effect of piling operating deficits on top of operating deficits is catastrophic.
Mr. Cavanaugh does not believe that the debt needs to be paid? What needs to be paid — at minimum — is the interest and the capacity to roll over the debt coming due; however, when the amount of debt explodes such as it has in the past 8 years, the interest explodes too, especially when interest incurred at historically low rates will need to be refinanced at rates much higher. Likewise, those creditors funding the debt will certainly take pause or stop funding all together. Subsequently, the interest liabilities become a debt for future generations paying for the debt service and the unfunded liabilities of the past generations’ profligate spending.
The attitude of Mr. Francis X. Cavanaugh is thoroughly repulsive — but what do you expect from a bureaucrat whose sole job was to oversee, protect, and administer the retirement savings and investment plans for Federal employees?