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Can the New Congress Help With Debt Crisis?

There's a new Congress in town, and they've got their work cut out for them. Along with an out-of-control war, they'll inherit a national debt that is forever increasing, due to the manic spending that has become the norm in American politics. If you're worried that America's debt is so out of hand we'll never be able to rein it back in, you're not alone. Authors Addison Wiggin and Bill Bonner say that if the current Congress doesn't make decreasing the national debt a top priority, future economic catastrophe is a virtual certainty.

"It's no secret that government spending has gotten way out of control," says Wiggin, who along with Bonner, co-authored Empire of Debt: The Rise of an Epic Financial Crisis (Wiley, 2006, ISBN: 0471739022, $27.95). "The Iraq war alone is putting such a significant strain on the national debt that something has to be done. But will something be done or will it all just be politics as usual? Only time will tell."

Interestingly, Wiggin and Bonner received a letter last December from Nevada Senator Harry Reid, now the soon-to-be Senate Majority Leader. In the letter--which acknowledged Empire of Debt's message--Senator Reid says that he finds the national debt "extremely troubling" and expresses an intent to do something about it.

"In the letter Senator Reid seems to have a strong concern for the growing debt and what it means for the American people," says Bonner. "We hope as Senate Majority Leader he will be able to influence his colleagues to be as concerned as he is and to encourage them to come up with legislation that will help us get a handle on the national debt. In fact, we challenge him to do so."

In the letter Sen. Harry Reid wrote:

I agree with you that our debt is extremely troubling, and I am disturbed that some in Washington seem to regard the debt as a mere inconvenience rather than the actual threat it represents. Over the last four years, the country has experienced the worst fiscal reversal in history, which is not a temporary deficit due to the economic slowdown or the costs of the war on terrorism. Instead, the $5.6 trillion 10-year surplus the President inherited is now a deficit of $2.8 trillion, creating a total fiscal reversal of almost $8.4 trillion. That amounts to over $25,000 of debt for every man, woman, and child in the United States and threatens to leave our children and grandchildren in debt for a generation. This massive debt will have a serious and damaging effect on our economy.

The budget surpluses that we achieved in the late 1990s and early 2000 resulted from a strong economy and some hard choices by President Clinton and Congress. I supported these budgets, but I have been unable to support the recent budgets, awash in red ink. These deals have eroded our country's surplus and its economic security. Please be assured that I take this issue very seriously and will continue to fight for a renewed commitment to fiscal responsibility.

"Based on this letter, he clearly wants to do something about the national debt," says Bonner. "But, all political posturing aside, the challenge will be overcoming the natural love of spending that seems to plague most political leaders. Each member of the new Congress must set a personal standard to create and support only fiscally responsible legislation."

Wiggin and Bonner--colleagues at Agora Financial, one of the world's largest financial newsletter companies--want the incoming Congress to open their collective eyes. Here are a few of the sobering points they make in their book and their newsletter, The Daily Reckoning:

· The 2007 Defense Department budget will cost us $439.3 billion, or 7 percent more than this year. This does not include spending for wars in Iraq and Afghanistan, which could add another $120 billion in 2006. (Americans so far pay about $46 million per Al Qaeda operative killed.)

· The renowned Levy Institute estimates that the United States will owe foreigners $8 trillion by 2008--a breathtaking 60 percent of our gross domestic product. Think about it: If we were trying to settle up on that debt, $6 out of every $10 that we earn in America has already been spent.

· Our trade deficit with China alone was $201 billion in 2005--a 24 percent increase over the $162 billion in 2004. And that alarming imbalance includes nearly $4 billion that American executives are pumping into Chinese business ventures as foreign direct investments.

· At home, three million American manufacturing jobs have vanished since mid-2000--exported to subsistence-wage dragons such as China. It's no wonder. In Jan.-Nov. 2005, Americans bought $185.3 billion worth of stuff from China--surpassing by 14.4 percent the $162 billion we spent during the entire year of 2004.

· Today, the average American household has $8,000 in credit card debt. And for every $19 Americans earn, they spend $20.

· The dollar must maintain a reasonable value or lenders will be unwilling to lend. Dollar loans must also pay a reasonable amount of interest. With $36 trillion in loans outstanding, even at 5 percent interest, that represents annual debt service payments of $1.8 trillion. Who's got that kind of money? Not Americans; they're already spending every penny.

The sinister statistics could go on forever. America's current way of life, financed by a swelling ocean of debt, simply can't. And that's the point that Wiggin and Bonner want Congress to grasp. In their book they assert that the United States is now an empire--a trend that actually began more than a hundred years ago--and all empires come to an end. History proves it. And while there is no way to know for sure where in the cycle we are, the authors believe we are much closer to the end than to the beginning.

Wiggin and Bonner believe that what will shatter America's confidence is a series of financial crises. They theorize that house prices will stop rising, which will cause a cutback in consumer spending, which will send the U.S. economy into severe recession. Individuals who are forewarned can be forearmed, but the authors see little hope that the mass of "imperial citizens" will reverse the self-destructive road they're hurtling down.

"We're dealing with an administration that doesn't think twice about spending billions of dollars we don't have," says Wiggin. "It is going to take everyone working together in this new Congress to put a stop to all of this superfluous spending. My hope is that Sen. Reid and like-minded members of Congress will lead the way in the fight to save the U.S. from a financial collapse. It's time for Congress to put their money where their mouth is--and I hope for all of our sakes that they will."

To view the complete letter from Senator Harry Reid, visitdailyreckoning.com.

About the Authors:

Addison Wiggin is the editorial director and publisher of Agora Financial, a multimillion-dollar financial research and publishing group based in Baltimore, Maryland. His e-newsletter, The Daily Reckoning, has attracted more than 500,000 readers in the United States and Great Britain, has been translated into French, German, and Spanish, and has been popularized by such mainstream publications as Money and Marketwatch.com. Wiggin has been featured as an expert in such publications as The New York Times Magazine, Worth, The MotleyFool.com, The Street.com and CNN/Money.

Mr. Wiggin has been a student, writer, and commentator of financial markets and governments for more than a decade. With a master's degree in philosophy from St. John's College and experience working with the Cato Institute in Washington, D.C., Mr. Wiggin has acquired both a macroeconomic and contrarian's outlook on domestic and international markets.

Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies, and the author of the free daily e-mail The Daily Reckoning.Bill Bonner's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest. Since then, Agora has grown to include dozens of newsletters focusing on finance, health, and travel. Since the early 1990s, Bill Bonner has vigorously expanded from Agora's home base in Baltimore, opening offices in London, Paris, Bonn, Waterford, Ireland, and Johannesburg, South Africa.

Agora's publication subsidiaries include Pickering & Chatto, a prestigious academic press in London, and Les Belles Lettres in Paris, best known as a publisher of classical literature.

Bill Bonner is the author, with Addison Wiggin, of the New York Times business bestseller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (Wiley, 2003).

About the Book:

Empire of Debt: The Rise of an Epic Financial Crisis (Wiley, 2006, ISBN: 0-471-73902-2) is available at bookstores nationwide and major online booksellers.

For more information, please visit dailyreckoning.com.