Don't look, don't tell

February 10, 2006

Driven by mounting budget deficits, the federal government brought back the 30-year Treasury bond yesterday. It was the first auction of this long-term instrument since Washington dropped it five years ago after a string of annual budget surpluses. The return to long-term borrowing was hardly surprising given that the Bush administration has turned that brief era of surpluses into record deficits. More notable, however, is that the government got away with having to pay only 4.5 percent on the long bonds, not much more than it pays on short-term debt.

By definition, the market is never wrong, we suppose, at least in the short term. And there are some reasonable theories as to why Mr. Bush's continuing fiscal recklessness and the resulting growth in the national debt have not yet driven up interest rates - among them, the deflationary pressures of globalization and the worldwide glut of savings. But at the risk of being party-poopers, we can't help but point out that, at some point, the piper will have to be paid.

The Bush administration and even Wall Street may not want to look closely now. But America's most self-centered generation - the baby boomers - is racking up a heck of a bill for its children and grandchildren, one that can only be met with higher taxes and higher interest rates. How big is it? Well, you know that huge Social Security shortfall that no one knows how to fund? Over the next 75 years, it's less than half the cost of making Mr. Bush's tax cuts permanent, according to an analysis by the Center on Budget and Policy Priorities.

Yes, we know that the president said in his State of the Union speech that annual budget deficits will be halved by the end of this decade. That's just hooey - it's based on projections of extreme spending cuts unlikely to happen and on the notion that tax cuts will produce greater economic growth and tax revenue, a theory so far not borne out. Meanwhile, in large part because of the tax cuts to date, the government for several years has been borrowing a quarter of all its non-Social Security spending. If Mr. Bush's tax cuts become permanent, even more borrowing is ahead. Just don't tell the kids.

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