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 latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
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

Romania a Step Closer to Repatriating Its Gold Reserves

gold barsRomania moved another step closer to bringing all of its gold home this week. According to Romanian news outlets, the Chamber of Deputies Budget and Finance Committee released a favorable report on legislation that would require the country’s central bank to repatriate its gold and hold it within the borders of the country. Related

READ MORE →

China’s Keynesian Experiment

While President Trump nags the Federal Reserve to reinstitute Obama-era monetary stimulus, China has already taken off down that path. And it actually has some people in the mainstream concerned. According to a Reuters report, the Organisation for Economic Cooperation and Development (OECD) is warning that while Chinese government stimulus may boost the country’s economy […]

READ MORE →

European ETF Gold Holdings Hit Record Level

The amount of gold held by Europe-based ETFs hit a record high in the first quarter of 2019, according to a report by the World Gold Council. European funds now hold 1,121.4 tons of gold. The WGC pinpoints three primary drivers of European gold investment. Related

READ MORE →

Production Plunges for World’s Largest Silver Miner in Q1

The world’s largest primary silver producer reported a plunge in production in the first quarter of the year, continuing a global trend of declining silver output. Total silver production at Fresnillo PLC dropped by 15% in Q1. The company blamed falling mine output on lower ore grades and reduced volume of processed ore. Related

READ MORE →

Silver Demand Hit 3-Year High in 2018 as Supply Fell

Silver demand was up 4% and hit a three-year high in 2018, according to the 2019 World Silver Survey released by the Silver Institute this week. Physical demand for silver came in at over 1 billion ounces last year. Meanwhile, silver mine production fell for the third straight year, dropping 2% in 2018 to 855.7 […]

READ MORE →

Comments are closed.

Call Now