Nowadays, it seems like the national debt hitting a new trillion-dollar milestone is such a common occurrence that it hardly even worth remarking upon. This week’s news that the national debt has surpassed $31 trillion is hardly even interesting for exhausted taxpayers used to ever-mounting obscene levels of debt. But unfortunately, the cost of rising debt is beginning to bite — and even sooner than many expected.
Even in the context of the world’s largest economy, $31 trillion is an enormous amount of money. It’s well past the size of the U.S. economy — even if you added the entire economies of the U.K. and Germany as well. If every single U.S. adult gave the federal government $100,000 tomorrow, there would still be over $5 trillion in debt left to pay off.
Neither is “eating the rich” going to save us. The wealth of the billionaires fluctuates with the stock market, but as of earlier this year, you could confiscate the wealth of every single billionaire, and not only would it not come close to paying off the $31 trillion debt — it wouldn’t even cover the $5 trillion remainder from the above hypothetical.
But even as credit-addicted members of Congress continued to spend, spend, spend, they assured taxpayers that the national debt meant little so long as interest rates remained so low. Advocates of increased spending argued that interest rates below 1 percent meant that the cost of borrowing was so low that it made the national debt effectively a non-issue.
That wasn’t true even then — the federal government spent about $350 billion last year just on paying the interest on the national debt. But those few voices for fiscal restraint have warned for years that interest rates will not stay low forever. Nevertheless, they were ignored by a Congress set on unnecessary stimulus packages well after the time for stimulus had passed, and which responded to voter concern about inflation with symbolic gestures rather than serious deficit reduction efforts.
Unfortunately, that prediction is coming true even sooner and in a more pronounced manner than even us doom-and-gloomers expected. Interest rates are now at or past 3 percent, meaning that borrowing costs taxpayers more than triple what it did before. For taxpayers stuck with a Congress that can’t bring itself to make any headway on serious deficit reduction, let alone debt reduction, that’s bad news.
The Government Accountability Office (GAO), a federal agency that functions as a watchdog, ran a simulation back in May (when federal interest rates were well below 1 percent) estimating the impact of rising interest rates on the federal debt. GAO estimated that, should interest rates steadily increase to 4.5 percent by 2050, merely the cost of paying interest on the debt would represent more than a quarter of all federal spending (up from about 5 percent this year).
And while that sounds bad, this analysis assumed it would take about 30 years for the federal interest rate to jump up to 4.5 percent. Instead, since just the beginning of the year the effective federal funds rate has jumped from 0.08 percent to over 3 percent. While this rate of increase will not continue unabated (hopefully), it suggests that estimates of 4.5 percent by 2050 are downright rosy.
It’s time for Congress to stop relying on historically low interest rates to give them a free pass for endless spending hikes. Taxpayers couldn’t afford Congress’s irresponsible spending habits in the best of times — they certainly can’t afford them now.
