Did you know that 40 cents out of every dollar you pay to the federal
government in taxes goes to one item in the budget?
It's interest we pay on our national debt. That's 40 cents we can't use to
improve our military, fund Medicare or Social Security, pay down the national
debt, or return to the people in tax cuts.
The problem is that our payments on the debt are going to increase radically
over the next decade. And that might happen even if we find the fiscal
discipline to drastically reduce the current projected budget deficits under
President Obama. That's because if the Federal Reserve is forced to raise
interest rates on government bonds it sells to fund our debt, the amount we
must pay to service that debt will only increase faster.
The real potential for catastrophe is staring us in the face and Congress
simply ignores the problem in favor of not offending anyone by continuing to
spend money we don't have. The problems with entitlements, with spending
priorities, with waste fraud and abuse in the budget are serious and need to be
addressed. But it is our payments to fund the national debt that very well
could plunge the US into the kind of economic Armageddon that would threaten
civil society and make the US an economic basket case.
Lawrence Kadish of the Claremont Institute writing in the Wall
Street Journal:
The OMB projects deficits of about $9 trillion over
the next 10 years. If that occurs, the national debt will be almost $21
trillion by 2019. However, the actual amount could be much higher. The OMB also
optimistically projects $13.5 trillion of revenue increases over the next
decade, while minimizing the inevitable rise in interest rates that will come
with an expanding national debt.
During Jimmy Carter's years in the White House,
Treasury yields reached 15%. The 2009 average interest rate on the debt was
only 3.2%. With our mounting national debt and budget deficits, it is
reasonable to assume that in the near future interest rates on new and
refinanced debt could double or triple.
Interest rates at 9.5% would mean a debt service payment of nearly $1
trillion on 2019. That's currently a little less than 1/3 of our entire federal
budget. Simply put, even draconian spending cuts on entitlements and massive
tax increases would be hard put to fund all the necessary programs of the federal
government if we are forced to pay that much in debt service.
And that's if we can even sell the bonds to fund the debt in the first
place. Already there
are signs of resistance from the Chinese to buying more of our debt. There
is also speculation that the weak US dollar will cause most central banks to
abandon it as a reserve currency, which would almost certainly put upward
pressure on US interest rates.
But the danger of catastrophe lies in the US being unable to get anyone to
buy our debt at any price, and the resulting default by our government. That
scenario, once considered all but impossible, is being seriously considered as
the unbelievable deficit numbers caused by government overspending start to
sink in.
Kadish:
In stark but simple terms, unless Americans are
made aware of this financial crisis and demand accountability, the very fabric
of our society will be destroyed. Interest rates and interest costs will soar
and government revenues will be devoured by interest on the national debt.
Eventually, most of what we spend on Social Security, Medicare, education,
national defense and much more may have to come from new borrowing, if such
funding can be obtained. Left unchecked, this destructive deficit-debt cycle
will leave the White House and Congress with either having to default on the
national debt or instruct the Treasury to run the printing presses into a policy
of hyperinflation.
It is against this background that Washington is
now debating whether to create social programs it can't afford.
Indeed, the way that some governments have dealt with their debt problems is
to allow inflation to gallop away unchecked, thus paying off their bills to
creditors in cheaper currency. Zimbabwe recently attempted something similar
and experienced a hyperinflation that may be unprecedented in world history. At
one point, the inflation rate was above 89 sextillion a year. A 10 trillion
Zimbabwe bill was worth about $30 US.
That could never happen here, right? There have been some
predictions that we would have a Weimer, Germany style hyperinflation of
several thousand percent due to the trillions of dollars that the Federal
Reserve pumped into big banks to keep them afloat last year. At some point, the
Fed is going to have to start withdrawing that money from circulation and most
experts, on balance, believe they will be able to accomplish this without
sending the US into a hyperinflationary spiral.
But the risk is there. As is the even greater risk that rising interest
rates that will be necessary to finance the debt will only add hundreds of
billions to the cost of servicing it, crowding out other spending priorities
until paying for our profligacy will be the ruin of us.
The easy way out is for government to continue printing money
uncontrollably, accelerating our budget deficits which is why this will
probably be our policy until disaster is staring us in the face. But by then,
it may be too late to save the American economy from a collapse that would
bankrupt the government and cause a real breakdown in civil society - a
scenario where money would be almost worthless and faith in government
destroyed.
A remote possibility? Only if you believe the government will ever get
serious about reducing our massive budget deficits. To date, our Congress seems
quite willing to add to that deficit by funding expensive social programs
rather than bite the bullet and make the hard choices to save us from our own
folly.
Rick Moran's Bio
Rick Moran is the Chicago editor of Pajamas Media, an associate editor of American Thinker and the proprietor of the blog Rightwing Nuthouse.
Posted
10-20-2009 12:01 AM
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