WASHINGTON, D.C. -- In the 1964 movie, a "fail-safe" point is where you sent fighter aircraft to meet a potential threat and await further instructions, before firing.
In 2011, in real life, it's a point where you send the country's economy, before it self-destructs. It's a lid on the amount of borrowing the federal government can undertake. President Obama calls it the "debt fail-safe."
But, as the 2011 General Membership Meeting of the Investment Company Institute convened Wednesday evening, Paul Schott Stevens asked the most pertinent question about this proposition.
The president and chief executive of ICI, on stage, pointed out to U.S. Treasury Secretary Timothy F. Geithner that the United States had stepped up its spending to between 22 percent and 24 percent of its gross domestic product. That compares to a historical rate of 20 percent.
Taxes? They're taking in revenue of less than 18 percent. "That's a huge gulf between those two,'' he noted.
Indeed, in an economy that generated an output worth $14.7 trillion last year, that "gulf" amounts to about $600 billion a year. Yet somehow, the annual deficit of this country is now past $1.4 trillion (thanks to post-credit crisis stimulus spending and such).
Geithner quickly pointed to the $4 trillion in deficit reduction plans that Republicans and some Democrats are promising over the next decade. The Obama Administration? It's only promising them over the next 12.
But let's not quibble. As Geither said, this is Washington. And there's a "convergence" happening, where both parties realize that strong medicine needs to be taken. How that will happen, he wouldn't say. "This is a very hard place to read from a distance. Even closeup, it's hard," he said.
But, a day earlier, at the 38th Operations Conference of the Securities Industry and Financial Markets Association Conference in Boca Raton, Fla., economist Allen Sinai was having none of this. He didn't cotton to the idea that His Honor the Secretary was propounding that the U.S. was poised to come back stronger than other economies around the world because it had taken aggressive action early in the crisis, as Geithner contended.
The economy recovery was weak, he said. Growth would start at or below 3 percent a year and remain well below the pace set in the last two bouncebacks from financial disasters. Joblessness would return to double digits, before long. Inflation would pick up. Deficits would persist and debt would grow.
The federal economy is printing money to stimulate the economy, he noted. Stand back and the United States is starting to "look like some of those Latin American countries in the Eighties."
For his part, Sinai had just opened an account at the Bank of China, in New York. Because that nation's currency was now more durable and had better prospects than that of the home team.
Why should Sinai -- or you -- feel better about the United States' ability to maintain its "debt fail-safe" recovery plan? Can the U.S. really cap its debt and somehow find a way to cut unemployment and grow the economy with the tools at hand?
"You're going to want to see what people do, not just what people do,'' Geithner said.
True enough.
But in the 1964 version, an unexpected technical failure occurred. Bombers are sent on their way to Moscow -- and can't be turned back. The Soviet metropolis is destroyed. And, in a show of culpability and responsibility, the U.S. in response destroys New York City.
This is, of course, fiction. The U.S. would never create conditions that would cause disaster both abroad and at home.
