Owing $52.7 trillion, Americans should not wait for a crisis, says founder Peter Peterson.
The middle of an election year is an especially tough time to be pushing potentially painful reforms in the federal government’s finances.
But that is what the Peter Peterson Foundation, which officially launches July 10, aims to do.
The foundation’s namesake, who spoke at Wednesday’s Monitor-sponsored breakfast, said the organization would concentrate on getting elected officials to focus on issues “that I call undeniable, unsustainable, and politically untouchable. I am referring to such things as entitlements, Social Security, Medicare, and so forth … current account deficits and the absolutely unprecedented level of foreign borrowing we do.”
It is a tall order. But the effort will be well funded. Mr. Peterson is senior chairman of the Blackstone Group, an asset management and financial advisory firm. When Blackstone went public last year, published reports said Peterson pocketed a $1.8 billion profit. And he has pledged $1 billion, over time, to the foundation.
As part of the launch, Peterson hired David Walker, former comptroller general of the US, as the foundation’s president. At the breakfast, Mr. Walker said he left the Government Accountability Office (GAO) before his 15-year term expired because, “I think the future of the country is at risk. I think we have a number of serious sustainability challenges that current elected officials are not taking seriously.”
Walker estimates that the federal government has run up $52.7 trillion in federal liabilities and unfunded promises. That amounts to $175,000 for each citizen, he says.
If no corrective action is taken, Walker said the potential consequences could be more significant than the subprime mortgage crisis that has hammered the US housing market. “We have a super subprime crisis on the horizon and that super-subprime crisis is the federal government’s finances. The same conditions that led to the mortgage based subprime crisis exist for the federal government’s finances,” Walker said.
Peterson, a former Commerce secretary in the Nixon administration, has been warning about federal financial mismanagement for decades. At the breakfast, he argued that waiting for a crisis to prompt corrective action is not the wisest course.
“If we depend on a crisis, I think the most likely crisis … [will] be in the foreign capital markets. The levels of borrowing reach such astronomical levels [lenders like China] lose confidence and stop funding our lack of savings and our deficit. And we have … a dollar crisis where the dollar falls steeply and suddenly interest rates go up dramatically.”
Pressure for corrective measures “has to come from outside the Beltway in order for elected officials to act,” Walker said. So he and Peterson say they plan to focus on three groups in addition to elected officials. “Youth, because they are going to pay the price and bear the burden if others fail to act. Second, the business community, broadly defined. That means corporate America, Wall Street, and the professions. And thirdly, the media,” Walker said.
In that outreach, Peterson can call on contacts built through years of public and private activities. He has served as chairman emeritus of the Council on Foreign Relations; founding chairman of the Peterson Institute for International Economics; founding president of the Concord Coalition; chairman and CEO of Lehman Brothers, Kuhn, Loeb; assistant to President Nixon for international economic affairs; and chairman and CEO of Bell and Howell.
As part of its planned outreach, the foundation is promoting a movie about fiscal issues called I.O.U.U.S.A. that was shown at the Sundance Film Festival. The goal is for it to be as influential as Al Gore’s movie about global warming, “An Inconvenient Truth.”