Only five countries have worse debt-to-GDP ratios than the United States, Sen. Gregg said. They are Japan, which is aided by its massive domestic savings; Iceland and Greece, which both have “gone bankrupt;” Italy, which may well be bankrupt if the way it keeps its book is ever straightened out; and Ireland, Sen. Greggs said.
“We’re on the wrong path,” Sen. Gregg said. “Now, we have breathing room because we’re the currency of the world and the world looks at us and says, ‘You know, the United States solves its problems.’ We do solve our problems and they should have that confidence in us.”
However, the United States is vulnerable to facing heightened interest rates if it continues to borrow money at such an aggressive pace that it cannot repay its debt without inflating its currency, Sen. Gregg said.
To understand the debt situation, it helps to think of a three-legged stool, Sen. Gregg said. One leg is focused on discretionary spending, another represents entitlement spending and a third component features revenues, he added.
Discretionary spending and revenues already have been dealt in Washington but what remains to be targeted is entitlement spending, Sen. Gregg said. The three key parts of entitlement spending are Medicare, Medicaid and Social Security, he added.
The banking industry is another concern. The Dodd-Frank law was supposed to stabilize the banking system but it actually is contracting lending and liquidity, Sen. Gregg said. The result is pushing certain financing activity onto off-balance sheet maneuvering, he added.
Rather than adopt Dodd-Frank, the best move would have been to impose “tough capital requirements” on banks, said Sen. Gregg, who previously served as chief executive officer of the Securities Industry and Financial Markets Association (Sifma), which represents securities firms, banks and asset managers.
Sen. Gregg also faulted certain Republican lawmakers for not focusing enough on governing and succumbing to the allure of grandstanding. The result is an erosion of public support for Republicans, he added.
He compared the current Republican Party’s shift to the right and its loss of two straight presidential elections to the Democrat Party’s “lurch to the left” in the 1970s with the nomination of George McGovern to challenge then-President Richard Nixon.
“The party is going through a period in the wilderness and it is going to have to figure out how to get it out of the wilderness,” Gregg said.
“We unfortunately have allowed what I call the shouters and the narrowers to take the playing field and dominant the playing field for, in my opinion, too long, as a party,” Gregg said.
Conservatives may not like his explanation that a national party must be a “very big tent” that requires compromise but he explained that the "self-promotional babble of a few" has become an unflattering image for the Republican Party.
A particular problem for the Republicans, Sen. Gregg said, is “too many people who have no interest in governing but have an interest in promoting themselves or their ability to take center stage and to dominant.”
The “best example” of that failing approach was the debt ceiling fight, Sen. Gregg said.
Sen. Gregg quoted former Sen. Phil Gramm, R-Texas, who once said, “’Never take a hostage that you can’t shoot.’ The simple fact was you could not shoot the debt ceiling or the continuing resolution. You were always going to end up shooting yourself in the foot if you tried. And on two different occasions, that has proven to be true in the past three year.”
Sen. Gregg wrote a commentary last September that criticized efforts within the Republican Party to defund Obamacare by threatening to default on the debt ceiling.
Despite a badly bungled rollout of Obamacare and a disastrous website deployment under the president’s leadership, the public’s attention to those glaring problems was deflected by faulty political strategy on the part of certain Republicans, Sen. Gregg said. However, he praised House Speaker John Boehner and Senate Republican Leader Mitch McConnell for trying to steer the Republican Party in a way that could enhance its appeal in the months leading up to the midterm elections.
Paul Dykewicz is the editor of Eagle Daily Investor, the editorial director of Eagle Financial Publications and a columnist with Townhall in Washington, D.C. His duties include editing four monthly investment newsletters, seven time-sensitive trading services and other reports.