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OPINION
Barack Obama

Column: America's real mortgage crisis

Evan Feinberg
The Capitol in  January 1996.
  • National debt recently surpassed GDP, exceeding $16 trillion.
  • Spending is the main driver of deficits and the easiest to control -- if we choose to.
  • A sovereign debt crisis would cripple our government, economy, and currency.

The housing crisis that played a central role in the 2008 financial collapse left more than 10 million households with mortgages higher than their homes actual value. Devastating as that was, it pales in comparison to the real mortgage crisis facing our nation — the loan we've taken out to pay for our government.

Americans are already underwater on a government we can't afford. When our interest rate adjusts upward (which it will), we'll face foreclosure on programs such as Medicare, Medicaid and Social Security, possibly jeopardizing our solvency as a nation.

This year, the gap between the revenue the U.S. will collect and the money it will spend comes to more than $1 trillion. Deficits like these have fueled a sharp rise in our national debt, which now totals over $16 trillion. That's bigger than the outstanding debt on every family's mortgage in America.

Like a homeowner, the U.S. must finance its debt by borrowing — with the interest alone on its "mortgage" topping $227 billion dollars last year. That interest is more than the combined budgets of the Departments of Transportation, Education and Homeland Security. (Unlike a homeowner, though, Uncle Sam can't get a tax deduction on it.)

As if the size of America's annual deficits weren't bad enough, we're compounding the problem by how we finance our growing debt. That's because the U.S. has the equivalent of an Adjustable Rate Mortgage or ARM — a loan with interest rates that can fluctuate.

Generally, an ARM offers would-be homeowners a low "teaser" rate that remains fixed for the first few years but then begins to readjust upward. This can entice borrowers to take out larger loans than they would otherwise. Two years before the crash, ARMs made up 90 percent of all subprime mortgages. When the rates on those loans jumped and the housing market collapsed, the rest of the economy went down with it.

In the same way, the U.S. is borrowing at rates that will eventually ratchet up. Currently less than 2 percent, rates are at historically low levels. But profligate spending and the threat of future inflation will inevitably increase the cost of borrowing.

So what happens when rates do go up?

Say by 2015 rates rise to 3.5 percent. Our projected debt of $20 trillion will cost Americans $700 billion in annual interest payments. At 5 percent — still a low number in historical terms — we'll pay $1 trillion. And if rates return to 1990 levels, we'll have to pay more than $1.5 trillion in interest before we can even begin paying down our actual debt.

Interest payments of $1 trillion would represent the largest single expenditure in the federal budget and equal total spending on every single discretionary program combined ​— including defense spending. In effect, the U.S. would be facing foreclosure.

What does "foreclosure" look like on a national scale? Massive inflation, the collapse of our social safety net, and/or default on our debt. Every American would face a dramatically lower standard of living.

But the story does not have to play out this way. To stop adding to our national debt and begin paying it down, we must reduce spending immediately and constrain its annual growth. That means doing three things. First, addressing the key drivers of our debt — Medicare, Medicaid and Social Security. Second, eliminating unnecessary spending and ending corporate welfare. And third, resolving to reduce spending by focusing on essential functions of government that maximize liberty rather than grow the bureaucracy.

This is our real mortgage crisis. If we address it now, we can avoid another major economic crisis and continue to be the most prosperous country the world has known.

Evan Feinberg is a policy analyst at the Charles Koch Institute.

In addition to its own editorials, USA TODAY publishes diverse opinions from outside writers, including our Board of Contributors.


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