Debt and Taxes — Big Either Way

Brian Riedl likens our growing national debt to the bubble that’s left many of us owing more for our houses than they’re worth, forcing others into destitution, and holding our economy under water:

In short, between 2009 and 2020, Washington is set to borrow more than three times more than in the previous 220 years combined. How has this been possible? Because Washington, like many homeowners, was lured by temporary low- interest rates. Since 2000, the interest rate on the 10-year Treasury note has fallen from 6 to 3 percent. The U.S. Treasury has lowered its interest costs further by shifting toward cheaper short-term debt. Thus, nearly half of government debt will need to be refinanced in the next 12 months, and nearly two-thirds will require refinancing within 36 months. So even though the national debt has surged since 2000, the annual net interest costs have actually declined from $223 billion to $209 billion. Consequently, some commentators are downplaying the long-term cost of rising debt. In doing so, they display a failure to understand interest-rate trends.

Enter President Obama’s Deficit Commission, which appears to be preparing to raise taxes to the tune of $26.7 trillion to make up 25% of the projected shortfall for Social Security and Medicare. At almost twice GDP, that means that even if the government manages to cut other spending enough to make up three-quarters of the problem, the equivalent of our entire economy will have to be siphoned away for two years.

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11 years ago

If I use my 0% credit card to pay my heating bill and mortgage, I should be able to take care of it later because I’ll be making more money. Right? I will be making more money, won’t I? What…yuou ean the interest rate on the credit card has gone up? You mean I owe more in paym,ents now than I make? CRAP! It must be the government’s fault. I know I didn’t do anything wrong.
Call Barney Frank! NOW!

Warrington Faust
Warrington Faust
11 years ago

There might be some wisdom in attempting to convert the short term debt to long term debt. That is only a Band Aid. The prospect of inflation which would help the debt situation is so imminent that they might not find many takers.
There is going to be a real temptation to run the printing presses, and everyone likely to buy the debt knows it.

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