The Leadership Gap and America's Fiscal Future

This speech was given by the Comptroller General before the Conference Board audience in New York City, New York on October 6, 2005. In my remarks today, I'd like to address two key concepts - leadership and stewardship. Both are of critical importance in both the public and private sectors and yet we don't hear much about stewardship anymore. That's a big problem which needs to be addressed. Today, our nation faces a series of current and emerging issues with profound implications for our collective future. To successfully address these issues, each of us, no matter whether we are working in the public sector, private sector or not-for-profit sector must do our part. We the people must begin to focus more on the word "we" rather than the word "me." This includes speaking up and demanding meaningful change in our companies, communities, and country. What's at stake is nothing less than America's continuing role as a superpower, the engine of global economic growth, and the envy of the world. What's also at stake is the future quality of life for our children and grandchildren. With the impending retirement of the baby boomers, rising health care costs, and relatively low revenues as a share of the economy, the federal government is facing a fiscal challenge unprecedented in American history. Unfortunately, our public officials have done little to prepare us for this reality. Some policymakers are concerned, but so far there have been few calls for sacrifice or dramatic and fundamental reform. Instead, the government's continuing lack of fiscal discipline in recent years has made our long-term situation much worse. The United States currently has three interrelated deficits. The first is the federal budget deficit, which in fiscal 2004 reached a record $412 billion on a unified basis. But the truth is that every dime of the Social Security and other trust fund surpluses went to pay for other government operating expenses. As a result, the federal on-budget deficit for fiscal 2004 was actually closer to $567 billion of which less than $100 billion related to Iraq, Afghanistan and incremental homeland security costs. Even more troubling, the federal government's long-term liabilities and commitments rose by more than $13 trillion in fiscal year 2004 alone to over $43 trillion, largely because of the new Medicare prescription drug benefit. The second deficit is our savings deficit. Put quite simply, too many of us - from individual consumers to elected officials - are spending today as if there's no tomorrow. At the same time, America has the lowest overall savings rate of any major industrialized nation. So who's been underwriting America's recent spending spree? The answer is foreign investors. That brings me to the third deficit--our overall balance-of-payments deficit. In 2004, the U.S. trade deficit hit a record $618 billion, up $121 billion from the year before. Overseas money has been pouring into the United States. Many of these funds are coming from Asia, where U.S. treasury securities have historically been prized. Thanks to the high savings rate in China, Japan, and elsewhere, it's relatively cheap for Americans to borrow. But there's a catch, and it's a big one. Increasingly, we're mortgaging our collective future, and some of our leading foreign lenders may not share our long-term economic, foreign policy, and national security interests. Imagine what would happen to the stock and bond markets if these foreign investors suddenly lost confidence in U.S. securities and decided not to buy or, worse yet, started to sell off their holdings.