by Dan Way
It’s not the sort of thing most Americans pay attention to, and if asked to do a close examination of it their minds would probably numb and eyes glaze over into a bored crust. But the colossal amount of federal debt this nation has accumulated, and the financial energy the interest payments on that debt alone sucks out of the economy, should be a lively catalyst for inquiring minds.
According to a just released Congressional Budget Office report: “Federal debt held by the public will reach about $12.8 trillion by the end of this fiscal year, an amount that equals 74 percent of the nation’s total output (gross domestic product, or GDP) this year. If current laws generally remained unchanged — the assumption that underlies CBO’s baseline projections — CBO projects that such debt would climb to $20.6 trillion, or 77 percent of GDP, in 2024.
“Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO’s baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3 percent of GDP, to $799 billion in 2024, or 3.0 percent of GDP—the highest ratio since 1996.”
According to the CBO, the interest rate paid on the debt owed by the public will leap from 1.8 percent this year to 3.9 percent 10 years hence.
Massive payments on borrowed money as the nation’s ever-growing indebtedness soars will affect the economy by crowding out private investment. And this trend is plotted during a period when more and more Baby Boomers will be retiring, taking their money out of savings, as fewer workers in their prime years are saving.
That means less money available for the government to borrow, and under supply-and-demand laws, we know when there is less of something that is in demand, costs reflexively escalate.