Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Interest Payments on Federal Debt on Pace to Eclipse Social Security Outlays

  by    0   0

At the current trajectory, the cost of paying the annual interest on the US debt will equal the annual cost of Social Security within 30 years, according to a recent report released by the Congressional Budget Office.

By 2048, as interest rates rise from their currently low levels and as debt accumulates, the federal government’s net interest costs are projected to more than double as a percentage of GDP and to reach record levels.  Those costs would equal spending for Social Security, currently the largest federal program, by 2048.”

According to the CBO, federal debt will double in the next 30 years to a record 148% of GDP. And the agency currently uses a low estimate for its debt-to-GDP ratio. It calculates the US debt is currently about 78% of GDP. Many mainstream economists say that number ranges closer to 105% GDP.

We have previously warned that the rising debt coupled with a higher interest rate environment could crush the federal budget under interest payments. Last fall, Pres. Trump signed a budget bill adding about $318 billion to the federal debt. That increase alone will require an extra $7 billion interest payment annually. Analysts have calculated that if the interest rate on Treasury debt stood at 6.2% – their level in 2000 – the annual interest payment on the current debt would nearly triple to $1.3 trillion annually.

Now, the government itself admits it’s on an unsustainable trajectory. And the CBO generally uses relatively conservative assumptions to generate its forecasts. The reality could turn out much worse.

So what, you might ask?

In the first place, growing debt coupled with soaring interest payments creates a vicious upwardly spiraling cycle. As debt grows, it costs more money to service. That requires more borrowing, adding to the pile of debt.

In the second place, debt stifles economic growth. Multiple studies have shown GDP growth decreases by an average of about 30% when government debt exceeds 90% of an economy.

Peter Schiff has said the massive debt could also spur on the dollar collapse.

But Congress seems unwilling or incapable of doing anything about the debt. D.C. has a spending habit it just can’t break. The GOP-controlled Congress recently had an opportunity to slash a modest $15 billion in federal spending authority.

It didn’t.

To put that in perspective, that’s just 0.08 percent of the federal budget.

As Eric Boehm explained in an article published at Reason.com, the “rescission” package would have only cut just $1.1 billion in actual federal spending over 10 years. The rest of the “cuts” came through sweeping up unused budgetary authority from various departments and agencies in the current budget.

If Congress can’t even cut a small fraction out of the budget when the party that is supposedly “fiscal responsibility” is in power, when exactly will it address the debt problem?

It probably won’t.

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Chinese Gold Demand Continued to Surge in February

After ending 2022 on an upward trend that continued into January, Chinese gold demand surged again in February as the economy continues to rebound from government-imposed COVID policies. Gold withdrawals from the Shanghai Gold Exchange (SGE) totaled 169 tons in February. This is a reflection of strong wholesale demand and signals an ongoing rebound in […]

READ MORE →

The Exploding Budget Deficit Is Another Big Problem for the Federal Reserve

February has historically been a big budget deficit month, but the Biden administration still managed to overachieve and run the second-largest February deficit ever. The only time the US government has run a February deficit bigger than the $262.4 billion shortfall last month was in February 2021 in the midst of the COVID stimulus. This […]

READ MORE →

India’s Oil Deals With Russia Further Erodes Petrodollar Dominance

Every government policy has consequences – some intended and some unintended. There is at least one serious unintended consequence of the economic sanctions levied against Russia after its invasion of Ukraine – an erosion of the US dollar dominance.

READ MORE →

Credit Card Borrowing Spiked in January Even as Big-Ticket Spending Slowed

In January, retail sales came in much hotter than expected. Now we know how consumers paid for the spending spree. They put it on credit cards. After slowing modestly in December, growth in revolving debt spiked again in January. But a slowdown in non-revolving credit moderated the overall increase in consumer debt. Overall, this signals […]

READ MORE →

Solar Energy Production Could Require Most of the Global Silver Reserves by 2050

Silver demand was at record levels in 2022 and there is reason to believe it will continue to run hot over the next several decades. One reason is the rapidly increasing demand for silver in the green energy sector. In fact, an Australian study projects solar cells may use most of the world’s silver reserves […]

READ MORE →

Comments are closed.

Call Now