The Obama administration may argue the U.S. deficits are not so high, but there’s no arguing with the fact that the interest the United States owes on their cumulative debt could be devastating for our country. According to a new report by the Congressional Budget Office, we can expect the U.S. debt to nearly quadruple over the next decade. This means that the U.S. will pay an interest payment of $233 billion this year, or 1.3% as a share of the economy.
If you don’t think that sounds too bad, project to the year 2024 and the interest payment becomes a record topping $880 billion, or 3.3% of GDP. According to a report by CNN, “That means interest will account for the lion’s share of the $1.1 trillion deficit projected for that year and will come close to what will be spent on Medicare.”
Why are the interest costs increasing so fast?
The cost of borrowing will increase for two reasons, according to financial experts, and one of the reasons might be good. For instance, we can expect the economy to improve, which is a good thing, but this will also raise the interest rates. Also, the United States continues to borrow and spend at an unprecedented rate so the underlying debt will remain high.
What does the CBO project? They believe if the U.S. government continues their spend, borrow, and spend some more policies, the debt could reach “$21 trillion — or 79% of GDP — by 2024.” Unfortunately, at this rate the debt will be double its long-term average of 40% of GDP.
What does this mean for the country?
Spend too much of the country’s tax revenues on interest payments will have devastating consequences. For instance, we will have less money to spend on other essentials such as health care, military necessities, infrastructure, Social Security Disability benefits and education. Experts suggest, in fact, that spending for many of these programs is likely to dip to their lowest levels since 1962.
What needs to be done about interest payments?
To lower the interest payments and limit deficit spending the government needs to do what many Americans have been forced to do over the last six years- align spending with revenue. The United States government has put themselves on what the CBO describes as an “unsustainable” trajectory where the interest owed on the debt is going to grow faster than the economy.
This is not news to anyone who has followed the policies of every administration for the last thirty years. Republican or Democrat, it never seems to matter. Politicians continue to live large, pass expensive legislation, and create and sustain unfunded entitlement programs.
It seems so simple to the average American…calculate the income you receive, create a budget, and spend only what you have. The government seems to think they have a credit card with no credit limit and the bill is never coming due. Unfortunately, nothing could be further from the truth.
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