Washington politicians gleefully spend money that we don’t have. Part of the problem is that they vote on a budget that isn’t their own. If it was their own personal budget, most (clearly not all!) of them would act responsibly and stay within their means, borrowing only when advantageous but staying within amounts that could be paid off in a reasonable amount of time and for a reasonable cost. But it isn’t their own budget, so they act and vote as if there is no tomorrow. After all, if we go bankrupt, the only cost to them is not getting re-elected.

Part of the problem is corporate America. Managers don’t want to steal money only from shareholders and creditors, but would like to take it from the rest of us as well. Why else is the middle class providing welfare benefits to the banking industry?

Part of the problem is us. While we deride the avarice of CEOs, such as the rascals heading our banks, the fact is that we are all greedy. Americans yearn for more and more all the time; and advertisers help us when our lusts begin to wane. We are not content with what we have—ignoring the fact that we are the wealthiest nation of all time and ignoring how many people in the world die every day from hunger. We feel entitled to wealth and prosperity; thus, we clamor before Congress to receive our fair share of whatever government doles out.

So we had the Bush Emergency Economic Stabilization Act of 2008, which essentially rescued banking executives from the consequences of their own recklessness. More precisely, it enabled former Treasury Secretary Hank Paulsen, former CEO of Goldman Sachs, to bail out his buddies and those entities in which he or Goldman Sachs had investments, such as AIG, and eliminate competitors, such as Lehman Brothers. Why Congress thought this bill worthwhile is beyond my understanding.

Now we have Obama’s American Recovery and Reinvestment Act of 2009, a bill that supposedly stimulates the economy. Regrettably, it looks like a hodge-podge of liberal pet projects, the usual pork, and a few tax cuts to get some conservative votes. While not as self-serving as the Bush bill, this one also has questionable aspects. On the one hand, proponents motivated the bill by fears that the U.S. would suffer an economic depression; on the other hand, they enacted mostly items from a Democratic wish list. Stimulation of the economy appears to be at most a by-product of this legislative fiat.

Whether any of this works has been debated by many others, and like others, I have my doubts. However, my present concern is whether the U.S. can afford these acts that require funds in the neighborhood of at least one and a half trillion dollars. That’s a lot of debt that somebody will have to pay.

The problem, of course, is that the federal government will have to issue a lot of bonds to cover this largesse. While Bernanke has been successful, so far, in keeping the interest rates down (thereby creating yet another asset bubble), one wonders for how long. Sooner or later, China and other countries may decide not to buy any more of this paper, which will decrease bond prices and increase their yield. Such interest rate increases will retard rather than stimulate the U.S. economy.

Even if we could keep interest rates infinitesimally low, the federal debt is rising so fast so quickly that the federal budget will be paying a lot more proportionately for interest. As any financial planner knows, when that happens, your client is in serious trouble.

The magnitude of this situation can be seen in the credit default swap market for the government’s 10-year Treasury bond. These swaps are in essence insurance markets that protect against the U.S. government’s defaulting on its bonds. The price of the insurance is stated in basis points; the higher the number of basis points, the more likely a default, at least in the eyes of the insurers and those willing to buy the insurance.

The prices for this insurance have been:

DATE	Basis Points
August 4, 2008	18.6
September 9, 2008	19.3
October 1, 2008	36.8
November 3, 2008	39.5
December 1, 2008	64.4
January 1, 2009	68.0
February 2, 2009	70.0

Notice two things from this chart. First, the price of the insurance approximately doubled after passage of the 2008 bailout. Second, as then President-elect Obama started talking about another stimulus package, the price of this insurance started rising significantly. By February 2009, the price doubled again. The quadrupling of this price has a clear meaning: those who are willing to put up their own money believe the country’s chances of bankruptcy are significantly higher than they were before these bailouts occurred.

Of course, the government could avoid a default by printing money. That so-called solution introduces other perils, as the resulting high inflation would devastate all cash funds and all dollar-denominated assets would become virtually worthless. It also invites social, economic, and possibly military conflagration with lender countries, as they doubtless would become quite upset when we destroy the value of their investments.

We are on the road to national bankruptcy. Let’s hope somebody wakes up in time to stop the disaster before it is too late. When we rise from our stupor, let’s then awaken members of Congress and the administration.

This essay reflects the opinion of the author and not necessarily the opinion of The Pennsylvania State University.

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J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals. He also has edited Accounting Ethics, a four-volume set that explores ethical thought in accounting since the Great Depression and across several countries. He is the co-author of a monograph, Fair Value Measurements: Valuation Principles and Auditing Techniques (with Mark Zyla, Managing Director, Acuitas, Inc.) published by BNA in 2007.