America's new faith-based guns-and-butter policy is hurting both guns and butter ... "Reagan proved deficits don't matter." [!!!??]

AUL B. FARRELL | Goldman Sachs guru warns of war-debt failure | By Paul B. Farrell, MarketWatch | Last Update: 7:02 PM ET Jul 23, 2007

Is America becoming a global credit risk? How to get back on track

ARROYO GRANDE, Calif. (MarketWatch) -- Subprimes downgraded. Will Moody's downgrade America's debt next? Actually, that's already happening; our credit rating is collapsing with the dollar.

Foreign banks are dumping dollar reserves, while we gorge on cheap toys and bad pet food. Actually, our biggest "terrorist" threat is internal: Distorted values are downgrading our nation's "creditworthiness." We're like out-of-control kids with stolen credit cards, spending our future with no plans to repay.
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Conclusion: "One central, constant theme emerges: sound national finances have proved to be indispensable to the country's military strength" and long-term national security
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America's new faith-based guns-and-butter policy is hurting both guns and butter. The war is costing us $12 billion a month. Hormats examined the Congressional Budget Office's projections for domestic costs: "In 2006, spending on Social Security, Medicare, Medicaid and interest on the federal debt amounted to just under 60% of government revenues" and "if they continue on their current path, they will account for two-thirds by 2015."

* Social security from $550 billion to $960 billion
* Medicare from $372 billion to over $900 billion
* Medicaid from $181 billion to $390 billion

Worse yet, these commitments will continue skyrocketing in later decades. The CBO projects the federal debt rising from 40% of GDP to 100% in the next 25 years: "Continuing on this unsustainable path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security."
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In my opinion, the turning point occurred in late 2002. Remember, the Afghan War was hot. America was in recession and a bear market. The surpluses of the 1990s rapidly disappeared. Corporate scandals were damaging our global standing. Washington was pushing a second round of tax cuts. And the Iraq invasion was imminent.

Treasury Secretary Paul O'Neill, true to Hamiltonian principles, warned the White House of a coming fiscal crisis. The vice president retorted: "Reagan proved deficits don't matter." (Hormats tells me Reagan never said that.) Soon after, Cheney "fired" O'Neill ... and Hamilton's principles of sound war financing were dead.

Unfortunately, Washington's radical new faith-based financing is sabotaging national security. America's unsustainable deficits are making us extremely vulnerable to terrorists whose goal is to "attack the United States, perhaps with chemical, biological, or nuclear weapons capable of killing enormous numbers of people and seriously disrupting the American economy," targeting a "major port or transportation center."

Hormats says America is now "relying on faith over experience, hoping that sustained growth will erase deficits and that the ballooning costs of Social Security, Medicare and Medicaid will be manageable in the coming decades without difficult reforms."