Interest on the Debt and a Responsible Debt Ceiling

With the debt ceiling now reached, it is clear we must increase in the amount of money the United States government can legally borrow.

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President Joe Biden and most Democrats have taken the position that we should increase the spending limit with no changes, modifications, or reforms.

Republicans—and Democratic Senator Joe Manchin—have said it would be irresponsible to simply extend the government’s ability to run up more debt without curbing spending. Any debt ceiling increase should be done in a responsible way, with serious reforms to the pattern of government spending, that will move us back toward a balanced budget by 2033.

The sheer weight of the interest on our growing national debt should convince anyone concerned about America’s future that the Republicans and Manchin are right.

According to the May 2022 Congressional Budget Office report, the United States is going to add $16 trillion to the national debt between now and 2033 (I’m sure that projection would be much higher now). That additional deficit spending will give the United States a debt as high as 109 percent of gross domestic product in 2027.

If the current uncontrolled spending pattern does not change, by 2030 paying interest on the national debt will cost more than the entire defense budget. By 2033, America will be spending nearly $200 billion more on interest payments than on our national security ($1.19 trillion in interest versus $998 billion in national security).

According to the CBO, all this spending will drive up interest rates—which will of course further drive up interest payments. It currently projects three-month U.S. bonds to jump nearly 400 percent (from 0.6 percent to 2.3 percent) and 10-year U.S. bonds will jump 80 percent (2.1 percent to 3.8 percent) over the next decade. This crushing interest will be borne by taxpayers.

This interaction between the debt and interest rate creates a vicious cycle. The more you borrow, the more pressure there is for inflation. The more inflation, the higher interest rates get. Higher interest rates mean bigger interest payments on the debt.

This cycle of government demanding money to cover its deficits also crowds out capital for the private sector—and ultimately weakens economic growth and job creation. We have watched the European welfare state system for 70 years. It has crowded out economic growth and increased unemployment and underemployment. We’ve seen downward cycles of bigger welfare states transferring more money from taxpayers to those who cannot find work—and thus increasing the number of unemployed. (In some cases, European countries have bailed out their neighbors and only made problems worse.)

I know it is possible to balance the budget because we have done it before. When I was Speaker of the House, we began negotiations with President Bill Clinton, a Democrat, which led to the only four consecutive balanced budgets in our lifetime.

The American people understand that the current deficit-spending machinery of big government is unsustainable. A new Rasmussen poll reports that only 24 percent of Americans favor raising the debt ceiling with no spending cuts.

By contrast, 73 percent believe it is reasonable to cut spending—and 62 percent favor modest cuts in all agencies. There are no sacred cows.

Every dollar we save is a deficit dollar we will not have to pay interest on in perpetuity.

The path forward is clear—and required for our survival.

First, we must get spending under control. Second, we must get to a balanced budget. Third, we must sustain the balance and start paying down the national debt.

Click here to read the full article in Newsweek

Comments

  1. We are selling oil, borrowing money from, and allowing open infiltration from our number one enemy CHINA. Profligate spending and money printing is very close to allowing the American dollar to be challenged as the number one currency in the world.
    If Biden gets his way there will be no WW3.
    China will win by foreclosure.

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