Debt conferences are spouting like mushrooms all over the Washington swamp this week, with events like the first meetings of the National Commission on Fiscal Responsibility and Reform (NCFRR). The Peter G. Peterson Foundation also launched an all-star conference including OMB budget director Peter Orzsag, former President Bill Clinton and former Fed chairman Alan Greenspan among others.

But unfortunately, none of these commissions will have much effect on national policy – and our national debt will continue to stay at its current record levels. I can’t help but remember two major commissions on the Social Security reform, both of which did not cut a dime of promised benefits but actually expanded the program far beyond its founders’ original mission. Call me cynical, but 2010 is a Congressional election year so politicians will promise more (not fewer) goodies for voters.

However, I do believe we can solve this debt crisis. We’ve done it before, and we can do it again. Here’s how:

Past Deficits Fueled Growth and Defense

First, a little history. You hear a lot wringing of hands and gnashing of teeth over the U.S. being a “debtor nation,” but maybe that’s not so bad. During the greatest period of our growth in the Industrial Revolution and during the early part of the 20th century, the U.S. was saddled with over $3 billion in loans to foreigners to finance railroads and Westward expansion.

World War I helped transform the U.S. into a creditor nation: By 1919, European nations accumulated roughly $10 billion in debts to the U.S. government. After the Versailles tready, the U.S. could have chosen to become a global economic loan shark … but we didn’t, and let a lot of the tab slide. 

So not all lending and borrowing is bad. The industrial boom and wartime solidarity are proven examples of how nations can help each other when borrowing is done right.

Another thing we need to keep in perspective is today’s federal debt-to-GDP ratio, rising from 25% in 1975 to above 50% last year and forecast by some to reach 100% by 2020 if nothing is done. We’re now at the “highest debt level since 1945,” when the debt-to-GDP ratio hit 130%. But think about 1945: That debt was almost all due to defending the world from two Axis empires in Europe and Japan.

Fixing Our Debt Problems

So, here is my “modest” solution to the debt crisis: Other nations should forgive large portions of our debt in exchange for all the “free” global defense we have given the world over the last 95 years. I’m thinking primarily of Europe, since we have forgiven their debts in the past and we rescued them from German aggression (twice) and protected them from Soviet expansion. Even the Chinese have benefited from our largesse, through the death of their rival, the Soviet Union. How about a little quid-pro-quo, world?

OK, that’s just my Jonathan Swift-like fantasy solution. Here is my REAL solution to America’s debt crisis:

Humans seek their own self-interest. The political pork barrel is the dark side of that motive — using legal powers to enlist representatives to wrest money from others. But there is a bright side to that ambition that we can harness to fuel economic growth and to tackle our debt. This is the formula that built America, and these principles can still work for our next generation:

1. Allow people who want to come to America to come here and fulfill their dreams. Open the borders to willing workers from any and all nations. They will create businesses that pay taxes, especially payroll taxes to fund Medicare and Social Security benefits of retiring Baby Boomers.

2. Allow creative innovations in technology to solve our fiscal, environmental and social plagues. Don’t punish small businesses with over-regulation. Technology has turned deficits into surpluses in the recent past (1995 to 2000) and new technologies can do the same in the 2010s, if we promote creativity instead of greater central control in the name of preventing all future excesses.

3. Baby Boomers should not retire too soon. Social Security was designed to give a few years of modest benefits to people whose bodies were worn out through coal mining, factory work and other physically-demanding labor. Today’s Americans are mostly “knowledge workers.” A brain doesn’t wear out as fast as a body; brains gain more skills with time, so we should work as long as our brains can work. Delaying retirement into our 70s can lower future federal funding needs.

On the Road to Lower Deficits

In the past few months, I have been predicting lower deficits. We’re already making progress, though few see it yet. Tax revenues are already higher than anticipated in 2010. The TARP program was far less costly than expected and global investors are still eager to bid on our Treasury notes at low rates. The budget deficit was only $65 billion in March, down from over $200 billion in some previous months. For the first six months of fiscal 2010, the U.S. budget deficit stands at $717 billion.

We will probably finish 2010 with a lower budget deficit than first feared, but that’s just my view. And there are still troubles over in Europe that remain a big question mark on economic growth and the sovereign debt scene.

But the bottom line is that our debt is not a mountain we cannot climb as a nation. My three-part solutionswill work due to our own inherent human nature, hard-wired into our souls. We just need politicians to get out of the way.

Tell us what you think here.

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