Does the Debt Matter? – Paying the Interest

As of September 30th, the end of fiscal year 2009, the official debt of the United States federal government was $11,875,900,000,000 ($11.9 trillion). The yield of the 10 year Treasury bond at that time was 3.26%; Using 3.26% as an estimate of the average interest rate results in an annual interest estimate of $387,154,340,000 ($0.4 trillion). That was 18.4% of total federal revenues from all sources in 2009.

This is a huge amount of money no matter how you cut it. But, it could be much worse. The 10 year Treasury bond yield since 1962 has averaged $6.89%. Below is the end of year yields for each year from 1962 through 2009.

Year - Yield of 10 Year Treasury Bond (%)
1962 - 3.95%
1963 - 4.00%
1964 - 4.19%
1965 - 4.28%
1966 - 4.93%
1967 - 5.07%
1968 - 5.64%
1969 - 6.67%
1970 - 7.35%
1971 - 6.16%
1972 - 6.21%
1973 - 6.85%
1974 - 7.56%
1975 - 7.99%
1976 - 7.61%
1977 - 7.42%
1978 - 8.41%
1979 - 9.43%
1980 - 11.43%
1981 - 13.92%
1982 - 13.01%
1983 - 11.10%
1984 - 12.46%
1985 - 10.62%
1986 - 7.67%
1987 - 8.39%
1988 - 8.85%
1989 - 8.49%
1990 - 8.55%
1991 - 7.86%
1992 - 7.01%
1993 - 5.87%
1994 - 7.09%
1995 - 6.57%
1996 - 6.44%
1997 - 6.35%
1998 - 5.26%
1999 - 5.65%
2000 - 6.03%
2001 - 5.02%
2002 - 4.61%
2003 - 4.01%
2004 - 4.27%
2005 - 4.29%
2006 - 4.80%
2007 - 4.63%
2008 - 3.66%
2009 - 3.26%

If interest rates return to the 6.89% average, annual interest payments on the federal debt would total $818,670,114,792 ($0.8 trillion) – 38.9% of total 2009 federal revenues.

Annual interest payments on the federal debt at a 10% rate would be $1,187,590,000,000 ($1.2 trillion) – 56.4% of 2009 revenue.

And, annual interest payments on the federal debt at a 14% rate would be $1,662,626,000,000 ($1.7 trillion) – 79.0% of 2009 revenue.

What would happen to the economy under these conditions? What would happen to federal government services?

Quote of the Day
“I can calculate the movement of the stars, but not the madness of men.”
Sir Isaac Newton

Link to Other Topics in the Special Report: Does the Debt Matter?