I will never forget the evening of September 24, 2008.  That was the evening when President George Bush announced to the nation that the American banking system was on the verge of collapse due to risky mortgage investments.  Within a few months, American's collective retirement savings were decimated and millions of hard working Americans lost their jobs as the country fell into the worst economic downturn since the great depression.   I remember thinking how this could have happened right now, just before the election, with little prior warning from the President and the rest of our leaders. 

In retrospect, the banking crisis should have not come as a shock to anyone.  It followed a long period of market interference in the banking sector by the federal government.  Through the enactment of ill conceived government regulation, the mortgage industry had been encouraged to grant mortgages to unqualified applicants under a theory that everyone in America should be able to own a home.  Income levels, ability to pay and credit worthiness didn't matter.  Over the years, the banking system became mired with billions of dollars of bad mortgages that were granted because of progressive governmental policy, not sound business judgment. 

Let me be clear, the Progressives in Washington caused the banking crisis and the subsequent recession.  If the markets had been left free to work absent government interference, these bad mortgages never would have been issued.  Think about it, what sound business person would grant a loan that they knew would never be repaid.  This is the kind of result that we should expect anytime 536 politicians (US Representatives, Senators and the President) try to dictate economic policies for a nation of over 300 million people.

I fear that Progressives in Washington are cooking up a far worse economic disaster as I write this article.  If something is not done, this coming tragedy will threaten the very existence of our great Republic. The Progressives in Washington are currently borrowing and spending our nation into oblivion.  Our national debt has grown to over $12.4 trillion.   A comparable helps add clarity to this staggering number.  Think about this.  If you were to fly from New York to Los Angeles adding up every residential home mortgage that you flew over, the total outstanding residential mortgage debt would add up to roughly $11.9 trillion.  Our federal government has managed to borrow more money than the entire country has in outstanding mortgage debt.  All of this debt despite the fact that Washington now takes in over $2.1 trillion a year of our money via tax collections.

What is even more alarming is the pace to which the debt is growing.  In 2000, the total deficit was $5.6 trillion.  In 2008, the total was $10.0 trillion.  President Obama's 10 year budget projection grows the total U.S. debt to over $24 trillion by 2019.  If the debt continues to grow pursuant to President Obama's budget projections, by 2019 the total annual interest payment on the debt would total over $1.2 trillion at a modest 5% interest rate.  If the rate were to go up (which is likely given the rising risk of default) annual interest payments on the debt would quickly balloon to more than total yearly tax revenue.   

So why does the debt matter to the average American that works hard to support his family?  Because, given the total debt size and pervasiveness in the economy, a government default on the debt would cause an economic calamity.  The debt is owed to pension funds, mutual funds, state and local governments, banks, individual citizens in the form of U.S. Savings Bonds, insurance companies and foreign investors.   Should the government default on the debt, it would cause a crisis across all economic sectors both domestic and international.  Almost overnight we would face a crisis more severe than the great depression. Tens of millions out of work, trillions in market wealth wiped out, massive fluctuations in monetary value, the end of our economic system as we know it.

Just as we should not have been surprised by President Bush's remarks on September 24, 2008, no one should be surprised when another President comes on television to tell us that the federal government can no longer meet its financial obligations.  This is the inevitable outcome when politicians inject themselves into matters that are best left to free markets and the everyday decisions of a free people.  It is the end result of "new deals", "great societies" and "social justice" programs that, at their foundation, are based on a universal fallacy: That government holds the answer to every problem and political leaders have the right, wisdom and power to interject themselves into private matters under a delusion that they know what is best for all of us and for every occasion.

Sam is an attorney currently working as a tax consultant and advisor to a variety of business clients located throughout the Midwest.  He is a native of Belpre, Ohio, and a graduate of Ohio State University (B.A. Political Science) and Capital University School of Law (J.D., LL.M. Tax and Business Law).  During his career, Sam has worked as in house counsel to a health care service provider and as an attorney in private practice.