Both presidential candidates are running around arguing which of them is going to cut taxes the most as well as outlining all the wonderful new federal programs they intend to introduce.

Like John McCain's prediction and forewarning about Freddie Mac and Fannie Mae a couple of years ago, here's the Kahuna's prediction and forewarning.


This will happen during the first term of whichever candidate is elected to the presidency. The reason is simple. There is a limit to the appetite of the world's investors for debt issued by the U.S. Treasury. There are some indications that investors outside the U.S. were already having concerns about the amount of debt they own when the national debt approached $10 trillion. Now with the Wall Street bailout, that amount is escalated 10% or so to $11 trillion. And of course, any further deficit spending by our government would further add to the amount needing to be financed with debt.

The first signal of real trouble will be an escalation of the interest rates demanded by buyers of our debt instruments. That will be the signal to whomever is President as well as the Congress that the jig is up. The world has reached its limit for financing our continued deficit spending. The rest of the world will call a halt to our political shell game. The increased interest rate bids for federally-auctioned U.S. debt will just be a signal that if the amount of debt isn't reduced, the next step will be that buyers will simply not bid on the debt.

There are only three possible solutions to this problem.

We can eliminate one pretty quickly. I can't imagine anyone proposing that we're going to "grow our way out of these deficits" with economic growth that will dramatically increase tax revenues. Let's agree on that--at least for the next few years.

The other two ways to reduce the debt are simple to understand. One is to dramatically cut government spending. Somemone's ox will be gored in this process. If done correctly, we'll all suffer.

The last solution is to increase federal revenues. Said another way that means taxes must be increased. The only question on this alternative is "whose taxes"? Increasing taxes on just the rich probably won't get it done. We're all likely to have to pay more in order to resolve the problem of letting our expenditures get so far ahead of our income for so many years.

The only thing that's happening here is that we're all going to wind up paying for permitting our government to act like "pigs at the trough" as John McCain has described them. The only difference is that we're going to have to start paying off the debt instead of shifting it all to future generations of Americans.

Mark it on your calendar as the Village Kahuna's prediction and forewarning.

Now listen to the debate by any of those running for office and see if even one of them has the guts to mention this possibility. My guess is that their campaign advisors will tell them to stay far, far away from any admission that any of this might be even remotely possible if they want to be elected. Time enough to let the public know the bad news after you're in office.