That which cannot go on forever, ceases:
Interest payments will make up 13 percent of the federal budget a decade from now, surpassing spending on Medicaid and defense. Finding the money to pay investors who hold government debt will crimp other parts of the budget. In a decade, interest on the debt will eat up 13 percent of government spending, up from 6.6 percent in 2017.
Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs. Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office.
Some members of Congress want to set the stage for even more red ink. Republicans in the House want to make last year’s tax cuts permanent, instead of letting some of them expire at the end of 2025. That would reduce federal revenue by an additional $631 billion over 10 years, according to the Tax Policy Center.
Despite the tax cuts pushed by the Trump administration, the Federal government collected a record amount of tax revenue from October 2017 to August 2018. Washington doesn’t have an income problem. It has a spending problem. Roughly a third of the Federal Budget in any given year is financed by borrowing money. A family that ran its household budget that way would soon be bankrupt. The Federal government has creative ways of masking its increasing insolvency, but it’s there nonetheless. The spending spree of the past two decades was possible mainly due to low interest rates across the economy. As the economic outlook in the U.S. turns upward, so will those interest rates. A single percentage point increase equates to about $160 billion, given the official government debt of just shy of $16 trillion. (Counting the ongoing raid of Social Security Funds — listed innocuously as “intragovernmental holdings” — the actual debt is over $20 trillion.)
In short, next year the government will spend close to $400 billion just to service the debt. Not a penny of that amount will improve the infrastructure of our nation, modernize our military or provide services for our citizens. It will simply go straight into the pockets of those who hold pieces of our country’s debt.
That debt has increased eight times faster than the government’s annual budget. In 1981 — 37 short years ago, the U.S. debt hit $1 trillion for the first time. That was an accumulation of more than two centuries. In less than 40 years, that debt increased 1,600%. The Federal budget over the same period increased from $1.9 trillion in 2015 dollars* to $3.8 trillion in 2015 — a “mere” doubling in spending.
We’ve been running like the cartoon coyote in thin air after leaving the cliff. Gravity — in the form of normal historical interest rates — is about to kick in.
It will not be pretty.
* People are so used to hearing about inflation, and the need to “adjust for it” when comparing years, that few stop to ask what drives it. The standard explanation is that basic market economics causes it. Not true — government deficit spending does. By flooding the market with dollars to enable his spending sprees, Uncle Sam diminishes the value of each individual dollar. It is, in effect, a “stealth tax” on the spending power of Americans. The value of a U.S. dollar remained remarkably stable from 1787 to 1913, with a directly convertible exchange rate of $20 to an ounce of gold. Only after creation of the Federal Reserve, which enables this gorging on debt, did that change. As of this writing, one ounce of gold is worth about $1200. That represents an 85% loss of dollar value in just over a century.