US Government Debt Different - Finance Department - University of ...

152Burning the Furniture to Heat the House – The Potential Role of Asset Sales in Funding the Federal Government’s Deficitsmuch shorter lives. The only budgetary priority that garners bipartisansupport is military spending that now exceeds the defense outlaysof the next ten largest economies combined. 2 As a result of this fiscalstalemate, annual federal deficits exceeding 5% of GDP stretch outas far as the Congressional Budget Office is willing to project.That the cost of servicing the $8 trillion of publicly-held debt thatthe last three Administrations have racked up remains manageableis largely a result of the Federal Reserve’s intervention in Treasurymarkets and its maintenance of low interest rates for what is now anunprecedented period of time. If the Federal Reserve is ultimatelyforced to unwind its monetary expansion and move rates higher, theincreased cost of servicing the Federal debt will crowd out privatecapital formation and productive government investment, constrainingeconomic growth and undermining the US government’s futureability to meet fiscal burdens going forward. Budgetary discipline isrequired.This chapter explores the role that asset sales could play in facilitatingthe inevitable political compromise that is needed to right ourfiscal ship. In the absence of policymakers’ willingness both to raisetaxes and to cut entitlement and military spending, selling off theFederal Government’s substantial landholdings and mineral rights tothe highest bidders and applying the proceeds to reduce our debt tomore sustainable levels may be the path of least political resistance,however embarrassing it may be to a once proud empire.The Risk of a Bond Market RevoltPolicymakers in Washington, DC seem unwilling or unable to makehard decisions to bring US fiscal imbalances to a sustainable path.While some deficit hawks see as a blessing the imminancy of the “fiscalcliff” (where the combination of expiring tax cuts and mandatoryspending cuts will automatically kick in next year without furtherCongressional action), seasoned Washington observers see “goingover the cliff” as nothing more than a set up for each side to re-claim2 Stockholm International Peace Research Institute, SIPRI Military ExpenditureDatabase, available at http://www.sipri.org.