http://www.politico.com/story/2013/02/cbo-congress-v-debt-87226.html Behind the fine print of new budget estimates released Tuesday is a growing — some say brutal — competition between discretionary spending by Congress and fixed interest payments owed on the growing government debt. Indeed, the steady increase in annual interest costs is a surprisingly big reason why the Congressional Budget Office sees deficits rising in the second half of the coming decade. Accumulated interest payments from 2014 through 2018 are $1.76 trillion under CBO’s new baseline. Interest payments for the second five years are more than double that or about $3.64 trillion. The growth takes place in a period when CBO is forecasting a steady ratcheting down on annual appropriations in hopes of reducing future deficits. On top of cuts enacted in 2011, the new baseline assumes that a new round of across-the-board cuts scheduled for March 1 will go into effect. The end result is that annual interest costs are predicted to have overtaken defense spending by 2020 even allowing for an extra $100 billion annually for overseas contingencies. And there is a dramatic change in the ratio between interest payments and total discretionary outlays to run the government — including domestic programs. In 2013, CBO estimates that discretionary outlays will total $1.2 trillion vs. $224 billion for interest: a better than 5-1 ratio. By 2023, discretionary outlays will be $1.42 trillion, according to CBO, while interest payments will have risen to $857 billion. That’s not even a 2-1 advantage.
Krugman economics in action. The accumulation of debt means ever increasing interest payments. Duh. You know who gets those interest payments? China and the 1% who can afford T-Bills.
Krugman argues for more borrowing. After all, people will loan us the money! He also suggests the govt. just print whatever money it needs to pay the bills. http://www.nytimes.com/2012/11/26/opinion/krugman-fighting-fiscal-phantoms.html?_r=1& For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling. But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.
The Federal government collected about $1.1 trillion from individual income taxes in 2012. According to this article, we'll be paying over $350 billion per year in interest on the debt. That means 32% of revenue collected from individual income tax will be going to debt service. And yet there are still so many assholes that think we can continue to spend like we have or that tax increases will somehow make any significant difference. Ignorant.
The Fed's printing $85B a month for the foreseeable future. Manufacturing money out of thin air! Awesome. People who buy our debt instruments will figure out we're paying their interest with dollars worth less and less each month. Either they'll find somewhere else (DOW 14000!) to invest or demand higher interest rates. If the latter, that $350B in interest could just as easily be $700B or more.
Nobody much likes it (and I say this as a person who makes my living working as a federal contractor) but we can't sustain the exorbitant sums of money we shell out in entitlements and military spending -- particularly the trillion dollar weapons systems we shovel money into along with the cradle to grave mentality and mandate we've developed. If we want to maintain a position in the world as the preeminent military power and defacto post-modern economic empire, then we can't afford to keep underwriting all of our adventures with Chinese bonds and we have to take our proverbial medicine for the sake of the future of the republic. Unfortunately we sort of have the government we deserve, having traded our citizenship (and the responsibilities that come with true citizenship) to become consumers obsessed with trivialities; uneducated, fat, and blissfully disengaged. This will end well I'm sure, but then again no empire persists forever.
Sadly, we have the benefit of 20-20 hindsight so we should be smart enough to repeat history. I think it was Robert A. Heinlein who wrote, "Democracy is doomed when the people figure out they can vote themselves tea and circuses." That's what we've voted ourselves.
Hmm I'm not a fan of empires, so that's not the worst thing. Personal freedom is what we should strive for. Oh this is soo true.
