Yet our interest tab was and still is roughly $225 billion annually.
Questions: (1) Why is that and (2) why does it matter?
(1) Why is because interest rates are approximately three times lower than they were a few short years ago, and (2) it matters because they're only that low today due to government policy. They won't remain low as the economy recovers.
Accordingly, simple math results in a potentially scary scenario for the not-too-distant future. That's because in a few short years we may have a $1 trillion annual interest bill on government debt. And the economy would have to grow sufficiently for Americans to shoulder that additional burden. Even if we were able to do so, however, that wouldn't leave much, if anything, for further investment.
To reiterate an old position, we must do what's necessary to unleash our private sector while at the same time getting government spending under control. Throw in energy independence efforts, and we have a trifecta of opportunity as well as danger ahead of us.
Accordingly, it's extremely important that we focus on doing the right three things-- (1) grow the private sector, (2) shrink government spending and (3) pursue energy independence with a vengeance.
Unfortunately, and as you know, betting on the support of our political knuckleheads is all too often a sucker's bet. Still, since it's the only game in town right now, let's make the bet and do what we can to get the politicians to act responsibly.
To repeat, as the nation's debt grows each day due to ongoing operating deficits and and as interest rates rise as the U.S. economy finds its footing during the next few years, interest charges on the national debt may increase to more than $1 trillion annually. If that occurs, the added interest expense could overwhelm our nation's ability to service its interest charges, let alone begin to pay off our already onerous debt obligations.
Uncle Sam's Teaser Rate is subtitled 'Low interest rates disguise the federal debt bomb.' Here's an excerpt:
"One business story these days is how companies are crashing the debt markets to raise money at today's bargain rates. The same goes for the world's biggest borrower, Uncle Sam, which is also quietly benefitting from historically low interest rates that cannot last. The latter deserves more attention because the next President and Congress are likely to be stuck paying the bill when rates inevitably rise.
First, a couple facts: the U.S. Treasury currently has $10.7 trillion in outstanding publicly-held debt, and more than $8 trillion of it must be repaid within the next seven years. More than $5 trillion falls due within the next 36 months.
This relatively short-term debt sheet is no accident. Like a subprime borrower opting for a low teaser rate, the government has structured its debt to keep current interest payments low. This is a political temptation for every Administration because it means lower budget deficits on its watch.
The Obama Administration has added close to $5 trillion to the U.S. debt. So it much prefers to finance all of this at a rate, say, of 0.3% in two-year notes than at 2% in 10-year notes. The nearby charts show how federal debt has soared during the Obama years, yet net federal interest payments are lower than they were in 2007 and lower than they were in nominal dollars even in 1997 when public debt was a mere $3.8 trillion. This year the debt is expected to reach $11.58 trillion.
The problem is that this disguises the magnitude of the debt threat and stores up trouble for future Presidents and taxpayers. And maybe not far in the future. . . . every 100 basis-point rise in government borrowing costs over the next decade will trigger almost $1 trillion in new federal debt. . . .
That may seem like a large sum, and it is, but consider what happens if rates quickly rise back toward their historical norms. . . .
If the government had to pay the 5% rate that it was offering before the financial crisis on today's debt, the annual interest payments would be $535 billion, twice CBO's projection for total federal spending on Medicaid this year. If Uncle Sam had to pay 6% on its debt, the annual interest payments of $642 billion would surpass total federal spending on Medicare, currently $484 billion. Such a radical change in budget math could trigger a political panic and intense pressure for tax increases, perhaps even for a European-style value-added tax. . . .
If the economy gains steam—say, in a new Administration that reforms the tax code, cuts spending and reduces regulation—the Fed may have to raise rates to forestall inflation. But if it raises rates, interest payments on the debt will soar, the deficit may not fall from its Obama trillion-dollar levels, and pressure could build for a tax increase."The next Presidential term may be spent trying to defuse the Obama debt bomb."
No matter who's the president, now or later, the debt and deficit problems are multiplying and will continue to do so until we all get serious about tackling them. Pogo lives.