US Government Facing $700 Billion In Annual Interest Payments

The federal budget calls for the United States to make $700 billion in interest payments on the national debt in 2019, about $500 billion more that the government will make this year. The New York Times reported those figures, which are already publicly available, in a story on the budget recently. The paper also wrote that the payments were unsustainable as interest rates rise due to more aggressive federal borrowing.

Almost every licensed economist believes that there are only three solutions to attacking the rising debt problem, and two of them may be untenable.

The government can sharply raise taxes on businesses and people and hope that this will not slow economic growth. That assumes that a consumer who already has limited access to credit will be a voracious buyer of goods and services even if another 5% of his or her income goes to the Treasury via the IRS. It is a real long shot to think that increased spending by consumers and businesses will move higher along with tax rates.

The second solution is to cut federal budgets from Defence to social services to the bone. Federal parks and monuments could be sold off. The work of many US government agencies and departments could be privatized. Washington could slash costs and liquidate much of the federal system for governing. A great deal of the budget, including social Social Security, Medicare, and Medicaid are fixed. The Defence department is not likely to be able to protect the country for much less than its spends now unless it completely shuts down the wars in Iraq and Afghanistan. The interest on the federal debt is obviously a large part of federal expenditures each year and that is obviously rising.

The only real option for cutting federal spending is to pull the social safety net out from under tens of millions of Americans by cutting the costs of the Social Security and medical expense aid programs. Voters are almost certain to punish any congressman or president who supports such measures out of office.

The last solution to the debt problem is very rapidly growing GDP, as long as it is not accompanied by rapidly rising inflation. GDP growth of 6% or 7% for half a decade would increase the tax base enough to bring the federal deficit and eventually the federal debt down. The trouble with relying on GDP growth is that the economy show no sign of stirring much now, inflation usually goes with rapid GDP growth, and the government does not have much capital available for further stimulus spending.

Other than those problems, everything is fine.

Douglas A. McIntyre