Official federal projections of spending, revenue, and end of fiscal year debt for 2010 through 2014 are shown below.
Assuming the federal government projections of spending & revenue for 2010 through 2014 are accurate (a very poor assumption in my opinion) the debt at the end of fiscal year 2014 will be $16,959,800,000,000 ($17 trillion). Using that figure and the federal projection of 2014 revenue (also a very poor assumption) the range of interest payments due on the debt based on the range of possible interest rates are:
One could say, “We’ll be fine" because the recent 10 year Treasury Bond rate was 3.26% and at that rate of interest the debt will be only 15.5% of projected 2014 revenue. Or, one could ask the question, “What will happen when (not if – when) interest rates go up?”
At the very least, one could expect an increase in the annual deficit equal to the excess interest payment. For example, if interest rates revert to the 48 year average of 6.89% then there would be excess interest due (above that due at 3.26%) in the amount of $597,045,398,958 ($0.6 trillion). The debt after paying the extra interest would be $600 billion higher than projected for that year.
This feels a bit like the credit card trap. You know, getting a low introductory rate on a credit card and maxing it out. Then, the bank raises the interest rate and you start making minimum payments. Then the bank raises your credit limit and you charge more. After a while you’re minimum payments on the card grow so high you have to stop going to the movies. Then, you have to stop eating out. Then you have to sell your car. Then… well, you get the picture.
Quote of the Day
“… I have to point out that government does not tax to get the money it needs; government always needs the money it gets.”
Ronald Reagan (1911 – 2004)
Link to Other Topics in the Special Report: Does the Debt Matter?
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