US Nears Fiscal Disaster: ‘Washington Doing Nothing’

"People are never going to understand how critical this particular time in history is," said Erskine Bowles, the North Carolina businessman and co-chairman of President Barack Obama's National Commission on Fiscal Responsibility and Reform. "We have $7.7 trillion worth of economic events that are going to hit America in the gut in December, and in Washington they're doing nothing about it."

Bowles' co-chair on the commission was former Wyoming Sen. Alan Simpson, who said political culture in Washington is preventing any action to address what is known as the "fiscal cliff."

"They're both in this," Simpson said of the warring Democratic and Republican parties. "They worship the god of re-election."

Wall Street titan Blankfein said resolving the conflict would go a long way toward rejuvenating confidence in the financial markets.

"I think the (presidential) candidates know how serious it is," he said. "I think they're trying to avoid it in part because it is so consequential and serious, and the ideas that would be put forward are unattractive to some people."

If the political differences were settled and a solution to the fiscal cliff devised — even one that is far afield from the Simpson-Bowles recommendations — it would mean a lot to markets and businesses such as Goldman, he added.

"I'd be a buyer of this market. Goldman Sachs would," Blankfein said. "We're not only advisers to companies, we're a company ourselves. We would assume that our business would grow."

As things stand, though, Simpson said investors are putting too much faith in Congress and the White House to work out a deal, making the stock market a risky proposition.

"The guys who are working and putting to the side are going to make it, and the guys who are just whistling around the market — and I'm not here to dampen that — but holy smoke," he said. "They really believe honestly that no Congress could be this stupid, and by God, they can."

The trio spoke jointly as the moment of truth for the so-called fiscal cliff approaches.

The term comes from Federal Reserve Chairman Ben Bernanke, who used it to describe the peril of what will happen should the automatic tax increases and massive spending cuts be allowed to take effect on Jan. 1.

Economists peg the damage as high as $720 billion and 4.6 percent of gross domestic product.

There are several components involved.

At stake are payroll tax cuts, a fix on thealternative minimum tax, and unemployment benefits among them.

Across-the board tax cuts enacted during President George W. Bush's term represent, at $180 billion, the biggest slice of the pie. They are targeted because Democrats consider the cuts skewed towards the rich.

Bowles identified four problem areas in the U.S.: Health-care spending that's twice that of any other country; defense spending higher than the next 17 nations combined; a tax code that is "inefficient, ineffective, and globally anticompetitive"; and a Social Security program that has a $900 billion hole to fill over the next decade.

All three expressed worry over whether other countries would continue to lend to the U.S. considering its current $16 trillion debt and $1.1 trillion budget deficit.

"We're at a tipping point," Simpson said. "The tipping point is when the people who loan us money say 'you're addicted' ... and so we're going to loan you more money, but we want more money for our money. Interest rates will kick up and inflation. The guy who gets hurt worst is the little guy."

Bowles pointed out that revenue does nothing more than pay for Medicare, Medicaid, and Social Security. All other expenses are paid for with borrowing "and half of it was borrowed from foreign countries," he said.

Simpson bemoaned the political divide: Democrats who portray the Republican Medicare reform plan as "throwing old ladies off cliffs," and Republicans who "didn't come to limit government, they came to stop it."

He added: "If you want to know about a stimulus, whether you're listening to (economist Paul) Krugman or whoever, we do a pretty good stimulus. It's called the deficit — one trillion, 100 billion bucks. What the hell do you think that is?"