Breaking into the ‘90s. A New World in Time. Walls fall, debts rise, politicians thrive, environments suffer-a look over the shoulder and over the horizon. : When Debt Is Respectable the GOP Heads for Trouble

WASHINGTON —  The most precarious legacy of the 1980s isn’t resurgent greed but a larger threat--the related and unprecedented expansion of public and private debt, all dressed up in a cheery facade of responsible national policy-making.

Dangerously irresponsible may turn out to be a better description. The nation’s resultant hangover, already being felt from California savings-and-loans to crumbling New England real estate, won’t be resolved with a few spoonfuls of medicine. There’s a worrisome chance that as the new decade unfolds the 1980s debt legacy could jeopardize the long and increasingly shaky U.S. business cycle teetering on financial dominoes, submerge the hoped-for “peace dividend” from Eastern Europe in a string of additional federal bailouts, further Japan’s financial displacement of the United States and push this country back toward the uncertain political economics of Democrats and liberals.

In a rich political irony, the time has never been more ripe for someone on the political right to commandeer Barry M. Goldwater’s 30-year-old title, “Conscience of a Conservative,” for an indictment of relentless 1980s conservative willingness to scuttle past philosophies of fiscal responsibility. As deficits and debt became convenient--to pay for Japanese imports, perpetuate federal tax-rate cuts or pump up Wall Street’s leveraged buyouts--top Republicans from former Treasury Secretary Donald T. Regan to economic theorist Milton Friedman began saying indebtedness wasn’t a problem after all. From 1980 to 1989, as they talked, the U.S. national debt tripled from $900 billion to $2.8 trillion.

Some supply-siders actually expressed enthusiasm over debt as a sign of strength. Far from being a problem, America’s ballooning international indebtedness of the late 1980s simply proved how anxious foreigners were to invest here. And mushrooming corporate debt wasn’t a danger, either. On the contrary, managers of unleveraged companies were faulted for making insufficient use of their assets.

Embraced by many conservative politicians and members of the financial community, debt became respectable and even started leading the church choir. By 1989, corporate, consumer and mortgage debt was at record levels and financiers had pioneered an incredible new array of instruments to refinance everything from boats to recreational vehicles.

Few liberals--politically accustomed to debt and deficits since the New Deal--ventured to stand in the way. But the critical weakness was GOP willingness to abandon a half century of opposition in order to embrace supply-side and monetarist economic cure-alls and then rampant use of debt for speculation. This “economic engineering” of the 1980s may well be courting a failure akin to that of 1960s liberal “social engineering.”

Even now, debt-related distortions of the 1980s have been fencing in the new 1990s political economy. In an agenda unmatched since the Great Depression, perhaps one-fourth of Congress’ time is taken up with debt issues--from Gramm-Rudman federal deficit reduction and the S&L; bailout to the emergence of the United States as the world’s No. 1 debtor. Still other debt-related problems forming on the horizon include LBOs, junk bonds and the apparent pricking of real-estate bubbles on both coasts, plus escalating bankruptcies and predictions that the S&L; bailout could be followed by similar crises in commercial banking, insurance and the private pension system.

Federal and state policy-makers already have a wide array of worries. The number of banks on federal regulators’ problem list is six times greater than before the 1982 recession. With insolvencies also rising among insurance companies, a decade of loose national attitudes toward debt and speculation may be coming home to roost.

Prices are softening in real estate--a $20 trillion nationwide market, three times larger than U.S. stock markets--and beyond bank exposure, consumer spending could be at risk if homeowners see their net worths ratcheting down. Individual bankruptcies are already at record levels.

The corporate junk bonds and LBOs at risk are part of a larger problem. Corporate debt rose by 111% during the 1980s; interest payments now take half of the corporate pretax dollar, up from a safer 30% in 1980.

Finally, federal auditors have even been raising questions about inadequate regulation and possible need for future S&L-type; bailouts in the $2 trillion private pension system and the $5 trillion array of federal loan programs.

Timing makes all of this particularly precarious; these potential dominoes are leaning on a business cycle that already represents the 20th Century’s longest peacetime economic recovery. Arguably, this longevity itself rests in part on the credit-card mentality that maneuvered so many debt problems into current centrality. Pilots trying to steer the U.S. economy to a “soft landing” face a hazardous runway--and past precedents aren’t encouraging.

In fact, the 1980s mark the third time in the last 100 years that the Republican Party has shed the inhibitions of conservative finance to follow a speculative drummer. Both prior periods--the late-19th Century “Gilded Age” and then the “Roaring ‘20s”--were also boom periods when Wall Street and the GOP embraced go-go finance and an expansive approach to private-sector debt. The historical caution is that neither of those two speculative and debt buildups managed to ease down slowly. Painful implosions were the rule.

This third debt buildup looms as a storm cloud over Americans’ opportunity to enjoy the fruits of democratic trends elsewhere in the world. The bills for the 1980s excesses may be coming due.