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0 pointsrayiner12y ago0 comments

We spend about $190 billion a year paying interest on our debt, out of $2.45 trillion in revenue. That's about 7.8%, which is not an unsustainable large number by any stretch of the imagination. To use the ever-dubious household analogy, it's like a programmer ($150k/year salary) having a $650 car payment. Maybe the ideal car payment for someone bringing home around $8000/month is more like $500 or below, but it's not exactly the height of fiscal irresponsibility.

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rvn104512y ago

Interest expense for the fiscal year of 2012 was actually 360 billion. And interest rates are at record lows, lets just say that interest rates jump back to average levels, then your looking at more than doubling that amount over the next 10 years as the debt gets refinanced and more debt gets added. Hardly sustainable. And the Fed is deliberately keeping interest rates at a ridiculously low level, so that the debt burden can be kept low, but we can't have that forever and things aren't looking too good in the near future.

protomyth12y ago

That's at the current interest rate (which is close to zero), the problem gets worse when interest rates go up due to inflation concerns.

nhaehnle12y ago

The interest rate is controlled by the Fed, which is effectively a branch of government.

Also, inflation concerns (by reasonable people) only occur when the economy overheating. An overheating economy automatically reduces the government deficit via increased tax flows and reduced social security spending.

anigbrowl12y ago

Treasury bills have a fixed-rate coupon. We pay more for older ones issued when interest rates were higher, but if we issue lots of them right now we'll still be paying 2.91% interest in 2043 when the bonds are retired. The idea is that when the economy expands further and interest rates rise, we don't borrow as much because a) revenues will be higher as well, which is good and b) it would be more expensive to borrow then, which is bad.

tedsanders12y ago

Could you elaborate? I don't understand.

My mental model is that if inflation is 2%, the nominal interest rates are 2% higher than the real interest rate. How much does inflation affect the real interest rate?

danielweber12y ago

A lot of the US debt is short-term; plus the US has a primary deficit.

The average interest rate over the past 50 years has been something like 5% [citation needed on my own number]. If we hit that, we will very quickly need to pay more money, and a lot of that old debt rolls over each year.

The US does not have a debt problem in 2013; as has been said, we can borrow at effectively zero. The US might very well have a big debt problem in 2018 or 2023.

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