The Debt Bomb: A Bold Plan to Stop Washington from Bankrupting Americaby Tom A. Coburn, John Hart, John Pruden
In a nation whose debt has outgrown the size of its entire economy, the greatest threat comes not from any foreign force but from Washington politicians who refuse to relinquish the intoxicating power to borrow and spend. Senator Tom Coburn reveals the fascinating, maddening story of how we got to this point of fiscal crisis-and how we can escape. Long before
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In a nation whose debt has outgrown the size of its entire economy, the greatest threat comes not from any foreign force but from Washington politicians who refuse to relinquish the intoxicating power to borrow and spend. Senator Tom Coburn reveals the fascinating, maddening story of how we got to this point of fiscal crisis-and how we can escape. Long before America's recent economic downturn, beltway politicians knew the U.S. was going bankrupt. Yet even after several so-called "change" elections, the government has continued its wasteful ways in the face of imminent danger. With passion and clarity, Coburn explains why Washington resists change so fiercely and offers controversial yet commonsense solutions to secure the nation's future. At a time when millions of Americans are speculating about what is broken in Washington, The Debt Bomb is a candid, thoughtful, nonpartisan exposé of the real problems inside our government. Coburn challenges the conventional wisdom that blames lobbyists, gridlock, and obstructionism, and places the responsibility squarely where it belongs: on members of Congress in both parties who won't let go of the perks of power to serve the true interests of the nation-unless enough citizens take bold steps to demand action. Throughout a distinguished career as a business owner, physician, and U.S. senator, Tom Coburn has watched his beloved republic careen down a suicidal path. Today, the nation stands on the precipice of financial ruin, a disaster far more dangerous to our safety than any terrorist threats we face. Yet Coburn believes there is still hope-if enough Americans are willing to shake the corridors of Washington and demand action. With an insider's keen eye and a caregiver's deft touch, Coburn diagnoses the mess that career politicians have made of things while misusing their sacred charge to govern. Coburn's incisive analysis: Reveals the root causes of America's escalating financial crisisExposes Washington's destructive appetite for wasteful spending, power grabs, backroom deals, and quick nonfixesRises above partisanship to implicate elected officials of all stripes in steering the nation off courseLays out a commonsense guide to restoring orderConcludes with a clarion call and sound advice for Americans dedicating themselves to defusing the debt bomb Above all, Coburn believes the United States can continue as a beacon of opportunity for future generations-but how we act today will determine whether we deliver the nation to our children and grandchildren fully alive, on life support, or without a pulse.
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THE DEBT BOMBA Bold Plan to Stop Washington from Bankrupting America
By Tom A. Coburn John Hart
Thomas NelsonCopyright © 2012 Senator Tom A. Coburn, MD
All right reserved.
Chapter OneRed Ink Rising
Our national debt is our biggest national security threat. —Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff under President Obama, June 2 4, 2010
Imagine that it started like this on August 4, 2014, in Tokyo.
* * *
A dozen of the top investors in Japan filed into a serene conference room overlooking Tokyo Bay. It was an early morning meeting in the Japanese branch of Entrust mutual funds, one of the largest managers of mutual funds in the world. Entrust, like dozens of other private funds, along with foreign governments, buys the U.S. Treasury bills that allow the U.S. government to function. When we borrowed money to pay for our government programs, these were the people from whom we got the money. Even this far into the Great Recession, which was now also known as our Lost Decade, few Americans realized it was the willingness of foreign governments and funds like Entrust that enabled the U.S. government to borrow the money it needed to pay our troops, write Social Security checks, and pay benefits for programs such as Medicare and Medicaid. Everything we took for granted was possible as long as people like those gathered in Tokyo this Monday morning agreed that U.S. debt was a safe bet.
The meeting began with an overview of economic indicators. The news in Japan, and Europe, was encouraging. In both regions a recovery was finally taking root after several years of turmoil and defaults. The United States was a different story.
Hiroshi Suzuki, the head of Entrust, spelled out his growing concerns. Nearly two years into the new Republican president's term, he said, the administration—along with a narrow Republican majority in the Senate and a majority in the House—had failed to pass a long-term deficit reduction plan and was not likely to pass any significant legislation this close to the midterm elections. If action was put off until 2015, he argued, the 2016 presidential elections would take over and nothing would happen until 2017 at the earliest. By that point, Treasury bills would be worth far less than they are today.
"The Americans have waited too long. I recommend selling our holdings of U.S. Treasury bills before the Americans have a chance to devalue their currency any further. We have an obligation to make wise investments for our own aging population," he said.
One dissenting voice, Akira Yamamoto, a former finance minister, argued that it was too soon to sell U.S. debt. The fundamentals of the U.S. economy were very, very strong. The United States still had a diversified economy, with abundant natural resources, untapped energy reserves, and a world-class university system.
"A few key reforms to the tax code and entitlement programs and a new energy policy would allow the American economy to grow at an impressive rate. This could very well be another American century, not a Chinese century," Yamamoto said.
Plus, he reminded the group, three years earlier Bill Gross, the head of PIMCO—which managed the world's largest mutual fund—had made a decision similar to the one Mr. Suzuki was proposing. Gross sold his holdings of Treasury bills in 2011 with the expectation that they would be worth less in the future. Later that year, Gross admitted he'd acted prematurely.
While the group understood the logic behind Mr. Yamamoto's argument, it seemed the political leadership in the United States was committed to the status quo, a path of self-destruction.
While Europe and Japan were resolving their debt crisis, the United States Congress was standing still. Congress had spent months trying to repeal Obamacare—a vital goal and a campaign pledge of the new president and every Republican. While the law had been effectively crippled by the courts and legislative action, the new Congress and president could not rally around a credible replacement plan. One such plan, the Patients' Choice Act—backed by Paul Ryan (R-WI) and myself—was defeated by Republicans frightened by special interests who falsely whispered it was a tax increase, while moderate Republicans and Democrats complained it was a backdoor attempt to end Medicare and Medicaid.
The new president said things would be different, but one of his first acts was to create another deficit reduction commission instead of offering a specific reform package. Outlining explicit tax and entitlement reforms would be too risky with such a narrow majority in Congress, White House aides argued. This new commission would be modeled after the Base Closure and Realignment Commission that successfully downsized military bases after the end of the Cold War. The new commission, called TRAC—the Tax Reform and Entitlement Action Commission—was lampooned. The president was so afraid of mentioning entitlement reform that the E was dropped from the acronym. The Wall Street Journal editorialized: "We need a solution, not another lap around the same TRAC. Plus, we already have a commission with ample authority. It's called Congress."
The rest of the world wasn't laughing. Without addressing its growing health care costs, everyone understood America's debt would rise far beyond sustainable levels. The world also understood that in the past three years, other commissions had been formed and had failed. President Obama had rejected the findings of his own debt commission—the Simpson-Bowles Commission—in 2010. The supercommittee that was formed in 2011 to avert a debt crisis had also disintegrated.
While Congress slept, the Federal Reserve continued to print money and keep interest rates artificially low to prevent housing prices—which had been stagnant for four years—from falling. It was obvious to those meeting in Tokyo the morning of August 4, 2014, that the Americans were going to inflate and devalue their way out of a crisis. That meant their holdings would be worth less.
Mr. Suzuki offered his closing argument: "Some of the smartest investors in America have declined to buy their own government's debt. It's time to look for other opportunities."
As the Tokyo meeting wrapped up, eleven of the twelve board members voted to sell Entrust's holdings of U.S. Treasury bills. Over the next hour, markets were calm. Then at 10:25 a.m. Tokyo time, the Wall Street Journal Asian edition, Bloomberg, and Reuters posted small news items about Entrust's sell-off.
Nothing happened immediately. Then, thirty minutes later another large fund in Asia sold its holding of U.S. Treasury bills. At noon, three more firms released their holdings. By 2:00 p.m., dozens of private firms across Asia as well as some of the top global firms had dumped their holdings of U.S. debt. At 2:31 p.m., the sell-off went into overdrive when the government of Singapore released its holdings of Treasury bills. The news of the Singapore sell-off spread like wildfire.
At 3:00 p.m. Tokyo time, the markets in Europe opened. Almost immediately every major private firm was dumping its holdings of U.S. Treasury bills. The value of the dollar had already dropped 10 percent compared to the euro and yen. With a European sell-off under way, the governments of Asia faced a difficult decision. Asian markets were about to close. Dumping U.S. debt would damage the U.S. and world economies, while holding U.S. debt would result in billions in losses. Most finance ministers realized the sell-off had already passed the point of no return—the U.S. economy would already be severely damaged. Japan, the second-largest holder of U.S. debt in the world, sold its holdings of Treasury bills. China, the world's largest holder of U.S. debt, would wait it out. The Chinese had other plans.
Less than an hour after the European markets opened, the dollar was in a free fall. Every other European and Asian government was dumping U.S. debt. At about 3:00 a.m. Washington time, the chairman of the Federal Reserve, who was vacationing—along with the president and most of Congress—received a call from a frantic aide who said a crash was under way. At 4:00 a.m., the chairman, the Treasury secretary, and the president's Council of Economic Advisers held an emergency conference call. They asked the White House chief of staff to wake the president, who was with his family at Camp David.
The president said it was important not to panic and raise the specter of bailouts. "There will be no bailouts on my watch," he said.
Americans woke to the horrifying news that the value of the dollar was dropping precipitously. Everything they owned—their life savings, retirement plans, and homes—had now lost a third of its buying power compared to other currencies. And there was no way to predict if we had hit bottom. At the same time, the price of oil jumped 50 percent because of the declining value of the dollar.
The president took the unusual step of holding a press conference at 8:00 a.m. Eastern Time, an hour before trading on Wall Street would begin. Global markets had overreacted and made decisions out of fear, he told reporters. The fundamentals of the U.S. economy were as strong today as they were yesterday. Everything would be all right.
Yet, when markets on Wall Street opened, the Dow lost 10 percent of its value in fifteen minutes. Trading was automatically halted. An hour later trading resumed, and the Dow lost 20 percent of its value. Trading was halted for the remainder of the day and would remain closed indefinitely by presidential executive order. Still, the value of the dollar continued to fall. Afraid that their life savings were disappearing, Americans began to trickle into banks and line up at ATM machines. At first it was orderly. With news of the sell-off deteriorating, a bank run was in progress. Americans were withdrawing funds at record paces. Bank websites crashed. When one bank in Berkeley, California, tried to close early, a mob shattered the windows and demanded access to their funds.
A week into the crash, the dollar had lost 50 percent of its value compared to other currencies, and the price of oil had doubled to $240 a barrel. Inflation also was beginning to pick up. Rumors of mass layoffs swirled. That's when the protests got out of control. In scenes not witnessed in America since the assassination of Martin Luther King Jr., entire city blocks were set on fire. Banks, other financial institutions, and government buildings were targeted primarily, but in many places the looting was indiscriminate. Anything that would hold its value—gold, silver, precious stones—was a target.
Ironically, Wall Street itself saw the least amount of violence. Perhaps it was the memory of 9/11. New Yorkers had seen the thin veneer of civilization peeled back not long ago and didn't want to return to that place. This was a financial catastrophe, but we would pull together. Our way of life, not our very lives, was slipping away.
The president deployed the National Guard to dozens of cities. Congressional leaders wanted to return to Washington but were encouraged to stay out of the city for security reasons. The president didn't want to create the appearance of imposing martial law in the nation's capital. Many members of Congress were more than happy to stay home. The nation was only six weeks away from a debt-limit increase. Neither side wanted to contemplate the tax increases and benefit cuts that would be necessary to fix this problem.
The president decided to reopen Wall Street the last week of August after the value of the dollar seemed to bottom out. The Federal Reserve also increased interest rates by a full basis point (a 20 percent increase) to stop the hemorrhaging and begged foreign governments not to dump our debt. When the markets opened at the end of August, the Dow lost 8 percent of its value, then crept up and stabilized at 7,000 points. In less than a month, the Dow had lost 40 percent of its value; the dollar was worth half of what it had been before August 4, and inflation was sure to markedly increase.
Congress would not have six weeks to sort out what to do. With the economy paralyzed, tax receipts to the Treasury plummeted. Because our government was operating on borrowed money—we were borrowing $6 billion a day—we didn't have the reserves to pay Social Security, Medicare, and Medicaid benefits as well as veterans' benefits and student loans. The entitlement trust funds had been robbed long ago.
With the rest of the world not wanting to see the United States face a complete default and bankruptcy, the leaders and finance members of the G-20 convened in Rio to make the United States an offer—and an ultimatum.
In exchange for the privilege of borrowing money from the international community, the United States would accept several fundamental reforms. First, the retirement age for entitlement programs would be immediately raised to 72. Benefits would be severely means tested. And tax rates would double for most Americans.
The finance minister from India summarized the meeting: "The United States has seen this coming for decades, especially the last five years. Future Congresses and presidents can modify these policies as they please. But if the United States wants to borrow money, they would be wise to operate within these parameters. These are merely the reforms they could have enacted themselves long ago."
Members of Congress expressed outrage but saw few alternatives. Borrowing a play from Greece's playbook, some called for a referendum on the deal. Congress passed a resolution disapproving of the G-20 plan, but they could not bring themselves to vote on the substance of the actual agreement because doing so would highlight their failure to anticipate the crisis. The president, by executive order, accepted the agreement.
Three years later, in 2017, the United States would begin to recover from the crash of 2014. Tax rates were lowered significantly, and a few deductions would be added back into the code. The draconian cuts to entitlement programs were scaled back slightly. The unemployment rate had peaked at 24 percent (true unemployment was probably closer to 30 percent) and started to come down.
Two years later, in 2019, the recovery would run into difficulty.
That summer, the People's Republic of China was conducting annual military exercises in the Taiwan Strait, when thousands of vessels suddenly headed straight for Taiwan. When satellite images of the maneuver reached Washington, the president threatened military action. The Chinese responded swiftly and curtly that they would dump our debt if we interfered. They also reminded the president that they had reached military parity with the United States. Our military leaders realized an intervention not only would cripple our economy but would likely lead to the loss of two or more aircraft carriers and would subject U.S. cities and military installations to cruise missile attacks, if not a nuclear exchange.
That afternoon China annexed Taiwan. The Chinese made one face-saving gesture. Because we had declined to access our own energy reserves, China extended the privilege of allowing us to purchase oil from their South American allies.
* * *
Although this scenario—the Entrust firm and its partners—is fictitious, we will face a calamity if we continue to ignore the unmistakable lessons of history and the economic and military threats posed by excessive debt, especially debt to foreign nations. Debt puts great powers in a weakened and vulnerable condition.
A crisis could be triggered by other events. In a weakened and unstable global economy, military conflict could break out with devastating human and economic consequences. We could face a crash in our stock market and see widespread civil unrest. Many in our government and law enforcement agencies believe we are already on the cusp of widespread unrest even without an acute debt crisis.
Admiral Mullen, therefore, is not exaggerating when he calls our debt our greatest national security threat. What makes his statement so remarkable is that for most of America's history, threats to our national security have been described in military terms: the size of opposing armies, the number of ICBMs, and—in a post-9/11 world—the determination of terrorists to kill civilians. Our military leaders, of all people, have no reason to downplay such threats, so Admiral Mullen's decision to identify America's greatest vulnerability in economic rather than military terms should be a wake-up call for every American.
History also shows that for great nations, the end can come quickly. Those who think we have years to debate these issues are courting disaster. Harvard historian Niall Ferguson asks, "What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night? Great powers and empires are complex systems, which means their construction more resembles a termite hill than an Egyptian pyramid ... including the tendency to move from stability to instability quite suddenly."
Excerpted from THE DEBT BOMB by Tom A. Coburn John Hart Copyright © 2012 by Senator Tom A. Coburn, MD. Excerpted by permission of Thomas Nelson. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
What People are saying about this
“The five loveliest words in the English language are those that begin the First Amendment: ‘Congress shall make no law . . .’ Notice the most underused word in contemporary Washington: ‘No.’ Fortunately, Tom Coburn uses it with gusto in attacking the crisis so well described in this book. He is a man with a plan, and the steely determination to implement it.” — George F. Will, nationally syndicated columnist
Meet the Author
U.S. Senator Tom A. Coburn is a former business owner and practicing physician. He was first elected to the U.S. House of Representatives in 1994. A true citizen legislator, he honored his self-imposed term limits pledge and left Congress in 2001. He returned to public service in 2005 after a successful campaign for the U.S. Senate. As he did in the House, he has limited his terms in the Senate and will be leaving after two terms, in 2016. He is also coauthor, with John Hart, of Breach of Trust: How Washington Turns Outsiders into Insiders. John Hart is an award-winning writer who has served as Senator Tom A. Coburn's communications director since 2005. He previously served as Senator Coburn's press secretary from 1997 until 2000. He is also coauthor, with Senator Coburn, of Breach of Trust: How Washington Turns Outsiders into Insiders. John lives in Washington, D.C., with his wife, Kimberly, and three children. John Pruden is a professional voice actor who records audiobooks, corporate and online training narrations, animation and video game characters, and radio and TV commercials. His exposure to many people, places, and experiences throughout his life---from his wide array of jobs early in life; to his Army service as a UH-60 Black Hawk assault helicopter pilot; to his travels through forty-four U.S. states, South America, Europe, and Asia; to his experience in professional improv and competitive singing---provides a solid creative foundation from which to draw for his intelligent audiobook narrations and gritty but sensitive vocal characterizations. His audiobooks include The Sisters Brothers by Patrick deWitt, which was chosen by the Washington Post as the best audiobook of 2011.
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To TillytheMole. Either you didn't read the book or you missed the point. Our Country is broke and in major debt. This book is a wake up call. How much of the debt is Pres. Obama's fault......I'd say about 5 trillion plus interest. Since the Democrats took control of Congress, the National Debt: has increased from $8.67 trillion to almost $16 trillion. The Deficit has increased from $161 billion in the last budget before Democrats took control of the Congress (FY 2007) to $1.3 trillion in the most recent fiscal years. The President and the Democrat Controlled Congress passed an $800 Billion Stimulus Package that they promised would create jobs, pay for shovel ready infrastructure projects and invest in green energy (Solyndra, Amonix and other failures). It didn't work and now we are more in debt. If we do what you are suggesting and double down and spend MORE money (borrowed money) on a plan that didn't work the first time, our economy WILL collapse. Try reading the book!!!!!!!
Sen. Coburn's book should add to the outrage that people already feel about the federal government. All of us have a stake in the health of the nation, and we need to address its ills right now, before it's too late. Everyone should read the book, and take the good Doctor's advice very seriously.
A fine, fine book. Coburn makes no secret of his Republican affiliation and yet he is, above all, a pragmatist and, sadly, one of the few politicians who believes that his role is first and foremost to serve the American people, NOT the narrow interests of his local constituents, NOR his party ideologues, and NOT his own re-election needs. His argument that "careerism" is the root cause of the shambles that is now the American system of government is thought-provoking and hard to argue with. The stories he tells of Big Government waste, program redundancy and downright fiscal stupidity are depressing in the extreme. Yet he exposes equally graphically the hypocrisy and deceit surrounding the "no tax increases" dogma that has become the ideology of the "little government" advocates on the other side of the aisle. A great book: a savage indictment of the American political system and a timely warning of what will happen to all of us if we don't recognize the problems and fix them.
Anyone who thinks Dr. Coburn's book is propaganda or that he is doing this for political reasons, has not read the book and is not aware of the tremendous work that he and his staff have done to educate the public on the waste and fraud throughout the government. BOTH SIDES! He is a statesmen and not a partician politician. Everyone should read the book and VOTE THEM OUT!
Senator Coburn summarizes the insidious obsession our elected representatives have to retain office and do no harm to their reelection. He lays out the details of the chilling and destructive effect the debt has on our lives, which goes largely unnoticed by a majority of the population. I won't provide details here since the doctor has done such a masterful job himself. I didn't rate it five stars because there are several passages which are repetitive, but on the other hand, they serve to solidify the tenets and drive the points home.
Dr. Coburn gives a great view of the inside of our government and career politicians making Washington seem like a bunch of corrupt crooks. I found this book very informative and Coburn gives analysis about everything he explains in his detailed plan to cut our spending. For a college pilot like myself who has no back round or seeking a degree in politics I found this book an awesome read, and he makes it very easy to understand for the normal citizen. I would recommend this book to anyone who want's the real story behind our debt and what the causes for government not planning anything to fix it. If we had more Senators in office like Coburn I believe we could turn this economy and nation around to what our founder fathers always dreamed for it to be. Doesn't matter if you're a die hard republican or a die hard liberal democrat, this book gives a detailed plan to fix the debt crisis our career politicians have put us in and get us back on track.
Next to Dr. John Taylor's, "First Principles: Five Keys to Restoring America's Prosperity," this book throughly explains our debt problem. Our debt problem is explained by Dr. Coburn as well anyone I've read over the past four years. Over the past four decades plus, Washington has spent money like a bottomless well. Dr. Coburn's writing on this subject is clear, concise, and understandable for the everyday citizen. I suggest this book to anyone, young or old who deeply cares for this great nation. We as the people, can demand a beter government for the people, by the people. Thank you Dr. Coburn.
Those who criticize this book as being partisan have either not read the whole book or are not thinkers. Colburn blasts both sides of the aisle. While he acknowledges that he is a conservative who would like to shrink government, at the same time he acknowedges that a solution to the debt problem must be a compromise or it will never happen. And he makes a strong case that we don't have much time to fix the problem. If you don't think we need to do something now about the federal deficit and debt, please step out of the way, because you are part of the problem.
Senator Coburn exposes the tragedy of the current political situation in Washington, the waste of money and totally irresponsible behavoir by representatives of both parties in our government. Every American taxpayer should read it.
Coburn is the only Washington Insider willing to tell the Truth about the Bankrupting of our country. Read this Book!
Coburn has written a book that examines several issues with the US debt crisis. Generally I think he is correct in his evaluation & solutions. Coburn discusses how to approach our health and retirement programs without throwing the beneficiaries - current & future under the bus. He outlines possibilities about how to reform our tax code and approach the debt conundrum. A far more sane approach than most that I have heard.
A chilling expose, one that you can take with a grain of salt. Well written. A frightening look into the future.
When our founding fathers wrote their views down for posterity, one of the things discussed was how to pay for wars, pay off debt, avoid credit defaults and thus keep our country in good standing. This book ignores this wisdom, instead choosing to politicize the problem and blame others. In that respect, it serves only as propaganda.
This book is written by a man who a has planned since the night of the Presdents swearing in to ruin him. So how much of the debt is his fault along with his cohorts in the do nothing congress! Instead of writing a book maybe he should have been working on jobs. Water, electrical lines and bridges need replaced. Invest in green energy in wind and solar, before we don't have a plant anymore!!