An American debt service explosion

 

By John Mariotti.

 

 

Occupy Wall Street sign in New Hampshire via granitegrok.com

 

This year the US government will spend almost $250 billion in interest to service the country’s $19+, (soon to be $20 trillion) national debt. That interest bill is incurred at very, very low (almost zero) interest rates. If the Fed loosens the reins on interest rates further, (as it says it plans to do), and a little inflation picks up (as the Fed hopes), and the US economy grows just a little (Which is all it has done under Obama—2%/year is typical), it’s easy to imagine a debt service explosion coming. That $250 billion could easily double or triple—even with modest increases in interest rates.

 

If this year’s deficit ends up at around $500 billion, a moderate debt service explosion could increase the interest on that level of deficit by 50% in a matter of the next year or two. Continued growth in the deficit and in interest rates and in inflation would see debt service expense leap to $1 Trillion/year in just a few years. Nobody is even thinking about this. Rather, the current Obama administration has proposed unrealistic, feel-good, unaffordable budgets projecting spending substantially more than the prior year, and consuming possible revenue increases—if any—and more.

 

 

 

 

To pay for all this, of course, Obama plans to “tax the wealthy” and corporations. But where do those folks get the money to pay increased taxes? By changing investment plans and charging more (to American consumers, also taxpayers) for whatever they sell at home (or abroad) and distributing less of their profits to shareholders, which are often pension plans and ordinary American investors. This plan sounds like a lose-lose for American taxpayers, citizens and corporations alike.

 

Thus, while President Obama and his allies portray plans as taking from the rich and giving to the poor, in reality, “what goes around, comes around,” and the poor and middle class will end up paying more, not in taxes directly, but for everything they buy.

 

After seven plus years of mismanagement, the president has neither learned that the country should aspire to live within its means, nor has he understood that “there is no free lunch.” Eventually all Americans’ pay for his “pie-in-the-sky freebies,” whether it is in taxes directly, or in prices for things they buy that now must be higher—to pay his new taxes.

 

The facts are inescapable. US debt is an inconceivably large number ($19,300,000,000,000) http://www.usdebtclock.org, and with growth and a little inflation, interest rates will rise and a debt service budget explosion is inevitable. The math is simple enough for a sixth grader to do. Double the interest rate and you double the debt service. Historically, interest rates have been much more than double today’s very low levels. Add to that continued deficit spending that drives up the total debt and the debt service amount goes up even faster.

 

The amount budgeted for the debt service explosion will soon need to be $500 billion—per year. All that is nothing more than the tribute to wrong minded policies that keep on spending more than is coming in, and ignoring the consequences. Who pays in the long run? Every American—rich or poor—pays. Even welfare dollars will buy less. What a tragedy of presidential incompetence.

 

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