I don’t read opinion pieces at Fox very frequently and I can’t remember the last one I linked to one. Too predictable. This morning I took the bait based on the caption regarding solving our biggest problem. The “biggest problem” to which the writer was referring was the debt.
I suppose one could debate whether the debt is our greatest problem. It’s certainly growing rapidly. Not quite out of control but too rapidly:
Find more statistics at Statista
Please note in the graph above that the increase in the public debt from 2017 to 2020 exceeds that since 2020 or, in other words, it’s a bipartisan problem—the parties are equal opportunity offenders.
But I think we have bigger problems. For example, the “Doomsday Clock” of the Bulletin of Atomic Scientists is the closest it has been to midnight ever including at the height of the Cold War.
Another example of a major problem: diminishing returns to scale. That’s an umbrella factor presently affecting a broad range of issues from scientific research to building infrastructure to just about everything related to government at all levels. We don’t get enough bang for the buck.
So, here’s my question. What’s our biggest problem?
I would nit a little bit; its not the debt itself that is the problem, but the interest on the debt.
A graph of interest expense as a % of GDP (especially if projected out that the Fed maintains a 5% interest rate); that would be illuminating.
Since something like 90% of the current debt is currently financed at < 3%; this is a risk that will become a major problem if interest rates stay high. That's why I am doubtful that the Federal Reserve will keep rates this high for long.
Your wish is my command:
Unfortunately, that graph does not show the most interesting part: interest on the debt by year since 2020. That’s when the interest rate started rising.
Some of the increased costs of debt service can be found here. We’re just starting to get into the really painful part.
Unless you assume that interest rates will remain low forever the total public debt remains interesting since a) you’re going to have to pay interest on it eventually and b) the debt overhang itself impedes economic growth.
I think this post may have what you’re looking for. I haven’t dug into it enough but its gruesome prediction of interest rising to nearly 5% of GDP over the next ten years may be sugar-coating it. The next Social Security Trustees’ report will be interesting.
After those horrible Reagan years good thing we had Clinton to bring it back down.
Steve
Thanks for that info; what you found is quite illuminating.
Here is how I do the numbers. Interest on the debt was $500 billion in 2022, already painful since that $100 billion more than 2021.
But back of napkin math says if the interest rate was 5% which is what the federal reserve wants for a “period of time†— $30 trillion * 5% = $1.5 trillion a year; that’s one trillion a year more then what we pay now. What the Federal Reserve wants to do to control inflation would wreck the Federal Governments income statement.
Something has to give; and I am betting it’s not the Federal Government.
From a policy standpoint it probably is the case that everything should “give”. The government spending should be diminished and taxes increased; inflation should be reduced but possibly more gradually.
The real question is who should bear the costs? If inflation is allowed to increase unchecked, those in the lowest half of income earners will pay the costs; if spending is reduced and taxes increased the upper half of income earners will.