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Free Minds & Free Markets

The Cost of Carrying Debt

Low interest rates ease the pain of carrying so much debt. But in the long run, somehow, the U.S. will end up paying for it.

Sometime in 2017, the total U.S. national debt will hit $20 trillion—more than the total gross domestic product (GDP) of the country in a year. That figure is projected to keep growing over time, thanks to rising annual deficits. Debt held by the public, a measure that counts all federal securities sold to individuals, corporations, and state and local governments, plus foreign investors, currently clocks in around $14 trillion. That figure is expected to hit $23 trillion in 2026.

There are risks to carrying a debt burden this big. It increases the nation's susceptibility to a fiscal crisis if interest rates rise, and it limits the sorts of projects government can take on in a constrained fiscal environment. The greater the debt, the greater these risks become.

One of the biggest drawbacks of a high debt load is the cost of paying interest, which is currently one of the largest spending categories in the U.S. budget. At $241 billion last year, debt service—which buys the country nothing except a continuation of its debt—is effectively a program unto itself.

Although today's unusually low interest rates aren't likely to return to historic norms anytime soon, they are expected to increase over the coming years. That means that interest payments will go up too. Indeed, according to a December report by the Committee for a Responsible Federal Budget, relying on data from the Congressional Budget Office and the Treasury, spending on interest payments will rise faster than any other program over the next decade, jumping 196 percent. In comparison, military spending, Social Security, and health care programs are expected to increase by 24, 77, and 78 percent, respectively.

That means that without policy changes, debt service payments will almost triple to $712 billion by 2026, and they will double as a share of the economy to 2.6 percent of GDP. Over the same time frame, about three-quarters of the expected increase in the budget deficit—the yearly gap between the government's spending and revenues—can be explained by the rising cost of those interest payments.

All of this depends on how interest rates change. They aren't expected to spike, but if they did, the consequences would be severe. If rates are even a single percentage point over projections, total debt will be $1.5 trillion higher over a decade.

Low interest rates ease the pain of carrying so much debt. But in the long run, somehow, the U.S. will end up paying for it.

Photo Credit: Richard B. Levine/Newscom

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  • ||

    Simple, keep it low and creep it back up under Trump, it will amplify in 2018 when the Obama debt ceiling vacation expires. It will completely ruin any plan Trump had or promised.

  • Bongstar420||

    They will raise it instead of taxing the rich.

    In fact, most everything they will do will ultimately benefit the rich disproportionately. They won't stop till they own everything they want to own.

  • Michael Hihn||

    Wil the rich shamefully escape from subsidizing roughly half the entire income tax for the core middle class ($40k-100k)?

    Or change the current average income tax rate, now
    $8.3% at $50,000 and
    28.3% at $1 million and up?

    The greedy bastards

  • gaoxiaen||

    We all have it coming, kid.

  • Social Darwinist||

    Until the government tackles the mandatory spending programs the deficit and therefore the national debt will continue to rise. I think most politicians are happy to kick the debt issue down the road. At what point will they seriously address the national debt? Will we be like Japan and hit 200% GDP?

  • SomeGuy||

    This is the likeliness. It will be another 8 years before we take it seriously and we will be at 150% by then and by time anything meaningful is done we will be at 200%

    It is beyond idiotic because its something simple to address if addressed sooner than later! Christ people are stupid and we sane people are powerless to do shit about it.

  • Michael Hihn||

    we sane people are powerless to do shit about it.

    Fiscal conservatives, including the libertarian establishment, MAY have fucked it up for too long to reverse.

  • Bongstar420||

    90% tax on billionaires will more than solve the problem

    Or they can stop sitting on their money, spend it, and pay the true value for work

  • Michael Hihn||

    90% tax on billionaires will more than solve the problem

    They already subsidize roughly half the entire share of income taxes for the core middle class ($40=100k).

    So you want to suck even MORE from Bill Gates' teat?

    The last time we had 90% tax rates. we suffered five back-toback recessions in a mere 16 years, until Kennedy repealed them. Here's the proof, official dates for our business cycles since the 1850s.

    http://www.nber.org/cycles.html

    Recessions start when the economy peaks. So go down the PEAK column and count the recessions 1945-1961. Now look down TROUGH for March, 1933. That's when FDR took office. The Depression was already over.

  • SteveDDD||

    When will the Japanese government run out of yen? Why does 200% of GDP (debt/GDP ratio) present a "problem" for a currency sovereign like Japan? Has the Japanese (govt.) ever failed to pay its bills? When will Japan fail to pay its creditors? Why would the Japanese government fail to pay its creditors? Is it because it will "run out of yen?" Why is addressing the national debt (which IS nothing more than savings deposits/DOLLARS at the Fed, or in the case of Japan, nothing more than savings deposits/yen balances at the BoJ) even necessary? Why is it necessary to worry about growing bank deposit balances? Does anyone (including YOU) ever worry about YOUR growing bank account balances? Of course not! ONLY examining ONE SIDE of the equation is akin to you asking for a loan and telling the bank you are in debt 1 million dollars-and telling them nothing more. Both you & the bank would NEVER and can never neglect to take into account your personal assets and income level....DUH...the US federal government has the power to tax and regulate every aspect of the US dollar...MONETARY SOVEREIGNTY...pass that news onto the deficit MORON who wrote this trash piece...Petey's so stupid he STILL thinks the US government can run out of money and is borrowing from the future...what a dumbass.

  • SteveDDD||

    To ALL the inflationista clowns out there: "... the US federal government has the power to tax and regulate every aspect of the US dollar..." Which absolutely includes the ability to prevent "too much inflation."

  • earthandweather||

    Why do you imagine that interest rates aren't likely to return to historic norms anytime soon? What / who sets interest rates? As price inflation picks up real rates will go up regardless of whether or not the Fed increases the rates over which it has control. US Treasury yields will have to move up and the value of the Fed's balance sheet will go down, as the yields on their bonds are lower than on the new ones being sold by The Treasury. I believe rates will move higher that historic norms. I don't know when it will happen, but it'll be soon and it will be fast.

  • Michael Hihn||

    The Fed MUST move slowly, because they've backed themselves into a corner. If they restored rates to historic levels today, the market crash would be bigger than 1929. The current market is a massive bubble created by near-zero rates.

    Near-zero interest caused a mass exodux from interest to equities -- especially pension funds with greater total assets than the NYSE -- with stock prices elevated by manufactured demand. Remove that massive demand and prices crash. Bigly. So they're forced into a balancing act, likely for many years.

    The only unknown is how the equity bubble is divided into stock and real estate equities,

  • Bongstar420||

    Free markets are supposed to crash...because interveining would be wrong

  • Michael Hihn||

    You just shot yourself in the head. Pasted a memorized soundbite that doesn't apply.

    Intervention is wrong ... so force a return to market levels quickly .... even if that causes a market crash.
    Doing it slowly would return to the same market levels WITHOUT a crash ... but retain the intervention,
    HOWEVER ... the intervention itself remains either way.

    "But a crash would destroy the investments of many Americans and severely damage pension funds."
    "Fuck 'em. Free-market soundbites are sacred,"

  • Vernon Depner||

    "somehow, the U.S. will end up paying for it."

    Well, no. We won't. We can't possibly create new wealth fast enough to ever pay this off, or even continue servicing it for much longer. Somehow, the US will end up effectively defaulting.

  • DanO.||

    But Trump is an outsider. He will fix this while draining the swamp. He promised.

  • Libertarian||

    As interest rates climb I will patiently await Paul Krugman's call to pay off the debt. For years he's been saying that we should incur more debt while rates are low, so it only makes sense that he'll reverse course as rates do the same.

  • Michael Hihn||

    THE SKY IS FALLING!
    THE SKY IS FALLING!

    Reason, once the champion of free minds and free markets, may have finally hit bottom. The Chicken Little of American politics. Generating hysteria, like the entire political class.

    The problems are quite real, and the threats are genuine. But Reason, and the entire current 0libertarian establishment, has no clue how to solve a single one.

    In health care, what were the RESULTS of a free market? Supply and demand were in balance. All who sought treatment received it. Even the poor and elderly,

    Government has failed to provide all the care needed.

    Removing authoritarian government is a proper goal. But today's free-marketers are also authoritarian. A REAL free market solution would TRANSITION back to market RESULTS.

    "Git gummint out" is for goobers and morons. In a free market, the uninsured were treated at no cost, mostly in charity hospitals. Today's humanitarian works by Rotary, Kiwanis and Masons then included health care. Repealing government, without first restoring needed private infrastructure DEFIES market results.

    Since the 1970s, libertarianism has gone backwards, now actually authoritarian.
    A Cato survey, by a top pollster, found 59% of Americans to hold libertarian views, fiscally conservative and socially liberal ... but the libertarian brand was rejected by 91% of those libertarians.

    Most Americans are libertarian but WE don't know ... them.
    Nor care to.

  • DanO.||

    Many libertarians are surprisingly authoritarian. They'll never admit it, while building their walls and banning the Muslims.

  • Michael Hihn||

    Will YOU ever admit that very few libertarians support those walls and bans.
    Every time Reason publishes pro-immigration, the fascist goobers here throw massive hissy fits.

  • Dizzle||

    Why are the border walls un-libertarian anyway? Walls don't restrict anyones rights to my knowledge. They only restrict the movement of people across our border in the places we don't want them crossing at. And people from other countries that don't have citizenship or visas to be here have no right to cross that border, at any location. And the majority of those who have proper authorization have no reason to not cross at the proper places.

    As far is I'm concerned national sovereignty is a duty of the government as laid out in the constitution. Defined borders and enforcement of the laws allowing for proper crossing of said borders are part of that.

  • Michael Hihn||

    Why are the border walls un-libertarian anyway?

    Start with the cost.

    Walls don't restrict anyones rights to my knowledge.

    Right away, you reveal an authoritarian mindset.

    They only restrict the movement of people across our border in the places we don't want them crossing at.

    By what right?

    And people from other countries that don't have citizenship or visas to be here have no right to cross that border, at any location.

    Youve just confused legal residency with border crossing..

    And the majority of those who have proper authorization have no reason to not cross at the proper places

    Who forces them to cross?.

    As far is I'm concerned national sovereignty is a duty of the government as laid out in the constitution.

    Are rights endowed by a Creator (innate to humankind) or by government.

  • Damned||

    LOL

    Libertarian, meet authoritarian libertarian.

  • Michael Hihn||

    Thanks! I did crush the authoritarian bugger.

  • Dizzle||

    On "cost"...
    So anything that costs a lot of money is un libertarian? Well I hope you protest the building and use of roads, sewers, schools, and any other govt infrastructure as well then. You should shame yourself if youve ever travelled on pavement. Also, on your premise, forcing the cost of housing, educating, and healing the people here illegally onto others is equally un-libertarian due to its extremely high cost. It's one thing to be libertarian, it's another to be a rational libertarian.

    On "authoritarian mindset"...
    How does questioning if a wall restricts someones rights prove authoritarianism? I'm not forcing anyone to cross it, and I'm not sealing it completely off. There are designated areas to cross (gasp, with government funded roads! Oh my!), I want to make sure those are the only places its happening. It's really no more interesting than that.

    "By what right?" The Constitution guarantees' the government will protect the border from invasion, and also provides the states the right to defend their own borders (hi, Arizona!). If this is how they choose to do it, fine by me. All I'm trying to do is make sure people cross at the proper places where proper screening and security facilities exist. We can argue the semantics of invasion, but I believe if only one person or sensory device is required to "invade privacy" or "trespass" then an unauthorized individual can also be considered an invader of sovereign territory.

  • Dizzle||

    On "confusing legal residency and border crossing"... We aren't building the wall to stop legal vacationers and south Americans' looking for their first trip to Disneyland. As I said before, those people already cross at the proper places and checkpoints and don't plan on staying here once they gain entry. I figured we were all smart enough here to see the distinction between illegal and legal immigration and not try strawmanning like that article on King's comments a few days ago.

    "Who forces them to cross?" Regarding the properly authorized people i was referring to in my previous comment...Themselves of their own volition if they're choosing to come here having already completed the proper steps to secure a visa or citizenship. Even In the case of the undocumented, they're still coming of their own volition as well. In both cases the "force" is themselves choosing to leave wherever they were and travel here.

  • Michael Hihn||

    On "cost"...
    So anything that costs a lot of money is un libertarian?

    On literacy .....

    Also, on your premise, forcing the cost of housing, educating, and healing the people
    here illegally onto others is equally un-libertarian

    Who does that? Why are you so eager to be brainwashed?

    On "authoritarian mindset"...
    How does questioning if a wall restricts someones rights prove authoritarianism?

    Back to literacy ... it's not the questioning!
    YOU DUCKED THE QUESTION: "Are rights endowed by a Creator (innate to humankind) or by government?" Wellllll?

    I'm not forcing anyone to cross it, and I'm not sealing it completely off.

    You're trying to. And you admit it won't work!

    There are designated areas to cross (gasp, with government funded roads! Oh my!), I want to make sure those are the only places its happening. It's really no more interesting than that.

    Guess why they don't use the roads/

    "By what right?" The Constitution guarantees' the government will protect the border from invasion,

    Military. See Art 1, Sec 9

    and also provides the states the right to defend their own borders

    Where?

  • Michael Hihn||

    On "confusing legal residency and border crossing"... We aren't building the wall to stop legal vacationers and south Americans' looking for their first trip to Disneyland.

    Are you confuse or dishonest? Here's your question.

    And people from other countries that don't have citizenship or visas to be here have no right to cross that border, at any location.

    Youve just confused legal residency with border crossing..

    ==

    I figured we were all smart enough here to see the distinction

    Some of us are.

    between illegal and legal immigration and not try strawmanning like that article on King's comments a few days ago.

    So you can bullshit on the question I asked?

    "Who forces them to cross?" ...

    Back to the question.

    And the majority of those who have proper authorization have no reason to not cross at the proper places

    Who forces them to cross?.

    WHY MUST THEY HAVE A REASON?
    The authoritarian mindset again.

  • Dizzle||

    "Are rights endowed by a creator or govt?" In theory you can say a creator, and to an extent i believe that being the freemason i am and believing in freedom of thought, expression, learning etc, and an architect of the universe. But to my knowledge said creator has never shown up to make sure his rights were endowed properly or equally among the planet. Therefore its the duty of responsible governments and citizens who recognize this to apply and guarantee these rights. The creator didn't host the constitutional convention or write the magna carta as far as I know.

    If said rights are endowed solely by a creator, what is he doing in the countries ignoring these inalienable rights for all? How does he enforce or ennact his will?

  • Michael Hihn||

    AGAIN lies about the question! (the one that demolishes him!!!)

    Watch the rambling incoherence .....after the deception

    Are rights endowed by a Creator (innate to humankind) or by government.

    "Are rights endowed by a creator or govt?" In theory you can say a creator, and to an extent i believe that being the freemason i am and believing in freedom of thought, expression, learning etc, and an architect of the universe. But to my knowledge said creator has never shown up to make sure his rights were endowed properly or equally among the planet. Therefore its the duty of responsible governments and citizens who recognize this to apply and guarantee these rights. The creator didn't host the constitutional convention or write the magna carta as far as I know.

    Gasbag??
    TOTAL ignorance of Natural Law?
    You decide

    If said rights are endowed solely by a creator, what is he doing in the countries ignoring these inalienable rights for all? How does he enforce or ennact his will?

    (pees pants from laughing)

  • Dizzle||

    Look man I get it, you're trying to be a high horse purist libertarian. Good for you. But in reality that gets you nowhere. So many things can contradict your point of view. Like pointing to the cost of the wall being bad, but ignoring the cost of educating, housing, and healing the illegals. Or assuming walls are authoritarion, yet id be willing to bet you live in a walled structure with specific exit and entry points called doors that are lockable to prevent unauthorized acess. Or acting like a creator is solely responsible for these rights that in reality never would exist with out liberty minded citizens and governments creating and enforcing them.)

    You can label me all you want, no skin off my back. But I'm trying to deal with the reality of these situations in our current political/governmental situation. Theoretical Libertarianism is great, in theory, but very impractical in today's landscape. We need to pick small battles and win them over and over. But instead you're essentially throwing a blanket philosophy over all the issues and throwing your hands up, acting like you're above it all. Points of view like yours are why people don't buy into libertarianism the way they should, given the numbers you cited, and why regular people look at us the same way they look at "intellectuals" on the left, ie as people too detached and idealistic to really make inclusive change

  • Michael Hihn||

    Look man I get it, you're trying to be a high horse purist libertarian.

    Most Constitutional adherents could have ridiculed you like I did.
    And called out all your shameful lies.

    Like pointing to the cost of the wall being bad, but ignoring the cost of educating, housing, and healing the illegals.

    1) I;m not as eager to be brainwashed with bullshit

    2) Umm. they pay the same taxes you do -- and FORCIBLY SUBSIDIZE Social Security and Medicare, by an amount estimated and published every year.

    3) And -- when you take US History, you'll learn that we fought a revolution over TAXATION WITHOUT REPRESENTATION

    Or assuming walls are authoritarion,

    That;s the second time you lies about and/or ducked the question. Do you people have ANY shame?
    Any at all?

    Behold the statist FINALLY answers the question! I set the trap for (smirk)

    Or acting like a creator is solely responsible for these rights that in reality never would exist with out liberty minded citizens and governments creating and enforcing them.)

    GOVERNMENTS CREATE RIGHTS!!!!!!!!
    (flush)

  • EscherEnigma||

    "Walls don't restrict anyones rights to my knowledge. They only restrict the movement of people across our border in the places we don't want them crossing at."
    To start with, it involves a lot of eminent domain seizures in order to build. Then you have a bunch of people with government walls/fences/whatever running through their property, and have problems getting to half their land (and since we're talking about property along the Rio Grande, it's often land that's been in the family for generations).

    So before we even get to the philosophical issues, there's some pretty simple reasons to oppose it.

  • Michael Hihn||

    I always appreciate seeing an informed commenter.
    They're so rare in a culture of competing tribal drones.

  • Johnny B||

    It is spending:

    As a % of GDP

    President Years Spending (% of GDP)
    Truman 1949-1952 16.9
    Eisenhower 1953-1960 17.9
    Kennedy/Johnson 1961-1968 18.3
    Nixon/Ford 1969-1976 19.7
    Carter 1977-1980 20.8
    Reagan/Bush 1981-1992 22.9
    Clinton 1992-2000 21.1
    Bush 2001-2008 21.3
    Obama 2009-2016 23.7

  • Michael Hihn||

    This is NOT a good site to defend Obama on!
    Do you realize that severe recessions are a separate metric, unrelated to spending (as a metric).
    Or that Keynes recommended running surpluses in boom times -- to PAY FOR deficit spending in downturns? To my knowledge, only Washington State does that, mandated in their constitution.

  • DOOMco||

    that's not what he said.

  • ||

    Nothing like Dan and Hihn talking about libertarianism.

    Kafkaesque.

  • Michael Hihn||

    Nothing like Dan and Hihn talking about libertarianism.

    Had nothing at all to do with libertarianism, Sluggo.

    Kafkaesque.

    READY FIRE AIM (smirk)

  • Michael Hihn||

    WHAT isn't what he said???

    Set aside any Obama hatred, and his spending follows a trend tracing back to Truman. How'd you miss it?

    I mentioned GDP because Reagan and Obama both inherited severe recessions -- Reagan's FAR worse, or course. I mentioned Keynes as context for Reagan and Obama. If we were drawing down prior surpluses than the spending would have far less relevance, since it was NOT paid from current revenues. Recessions increase spending without a single change in the law.

  • Damned||

    Depends on how you quantify "severe"

    Reagan did not inherit a recession. Carter's lasted from Jan to Jul 1980. Reagan's own recession lasted from Jul 81 to Nov 82.

    Obama's started under W and lasted a little longer fro Nov 2007 to June 2009.

    Unemployment (peak) for both was around 10.5%, Reagan's a little higher. The GDP drop though was far greater for Obama (about 5%), Reagan's about 3%.

    It is true that inflation was far worse under Reagan.

  • Michael Hihn||

    Proggie Liar. This is pasted from the last time you asked.

    Reagan's stock market was still crashing to 70%. Obama's had fallen 65% but rebounded to -46%

    Reagan tax policy began with 10.8% unemployment and was down to 5.8% in only TWO years. Obama's stimulus passed with unemployment at 8.3%, increased to 10.0%, was 9.8% after two years and didn't hit 5.8% until 69 months.

    Reagan inherited the highest prime-rate ever at 21.5% Obama at 3.25%

    Reagan started with a far worse recession, but at the end of his first term real GDP had increased 12.6% in four years combined. Obama's first four years saw only 3.3% total. and http://nber.org/cycles.html

    Now compare business cycles with prime rates. Libruls claim the recovery was launched by the Fed lowering interest rates, The recession ended in Nov, 1982, with the Prime Rate at 11.5%. Never saw single digits until June, 1985 -- just shy of three years into the recovery -- and did not see historic averages until December of 1991 (6.5%).

    Birthers aren't the only ones EAGER to be manipulated.

    Depends on how you quantify "severe"

    Same as last time!
    Anything else?

    (Why are you stalking me?)

  • Michael Hihn||

    Repost for links. Part One
    Stock Market

    Unemployment

  • Michael Hihn||

    Repost links Part Two

    Prime rate

    GDP

  • Michael Hihn||

    Repost links Part Three

    Business Cycles

  • Michael Hihn||

    Pathetic?

    Unemployment (peak) for both was around 10.5%, Reagan's a little higher.

    (laughter)
    Reagan started at 10.8% (tax cuts)
    Obama started at 8.3% ("stimulus") THEN increased to 10.0% AFTER the "stimulus" (OMG)

    But Bernie will give you a cookie!!

  • Michael Hihn||

    Repost for links Part one

    Stock Market

    Unemployment

  • chadadan||

    We all have it coming

  • Michael Hihn||

    Only you, Sparky.
    As already proven,

  • Roscoe BoDeen||

    The debt level is now reaching levels where the FRB cannot allow interest rates to rise significantly due to interest costs eating a greater percentage of tax revenue. It is not unrealistic to assume that unless the debt situation trend is changed, the US could follow the path of Japan longer term. This would mean lower GDP growth and more government fiscal and monetary intervention. Failure to manage our fiscal and monetary affairs for years is a pox on both the established political parties.

  • Bongstar420||

    We carry debt so the rich can be richer without working.

  • Mahesh Raju||

    Removing authoritarian government is a proper goal. But today's free-marketers are also authoritarian. A REAL free market solution would TRANSITION back to market RESULTS. IMO for pc and IMO for windows 10

  • SteveDDD||

    Increased interest rates are an economic STIMULUS, as more US dollars are pumped into the economy, which grows GDP. GDP = federal spending + non-federal spending + net exports Peter, just STOP being a deficit moron.

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