The net interest on the U.S. Federal Debt is roughly 3 percent of Gross Domestic Product (GDP), amounting to $882 billion. What does this percentage and the absolute number mean? If they were to increase, does it mean that the U.S. is becoming weaker? That its ability to borrow necessarily diminishes? That the debt must be cut?
The 3 percent number does not offer insights into these questions. It shifts the debate from assessing the output Americans get from the federal government spending to a meaningless comparison between interest payments on the accumulated borrowing and the statistics bureau’s estimate of what the country produced during the year. The numerical exercise is similar to a farmer comparing interest paid on his borrowings over the years to revenues from his harvest one particular year. Such a number does not shed light on either the farmer’s future harvests or the interest rates on his future borrowing.
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