Friday, July 13, 2012

The ticking debt bomb

We ain't seen nuthin' yet...
The current national debt is about $16 trillion (this is just the funded portion... the unfunded liabilities of the Treasury are much, much larger). The only reason the United States is able to service this staggering level of debt is that the currently low interest rate on government debt (now below 2 per cent) keeps debt service payments to a relatively manageable $300 billion per year. On the current trajectory the national debt will likely hit $20 trillion in a few years. If by that time interest rates were to return to some semblance of historic normalcy, say 5 per cent, interest payments on the debt would then run $1 trillion per year. This sum could represent almost 40 per cent of total federal revenues in 2012! 
 Naturally, our leaders' response to this awkward position is to keep running up the tab...

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