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

Yield Curve Inverts Flashing Recession Warning; Stocks Plunge

The yield on the 10-year Treasury fell below the yield on the 2-year for the first time in 12 years, stoking recession fears and tanking stock markets. Yield curve inversions have preceded all nine recessions since 1955.  This was the first time the 10-year Treasury yield has dropped below the 2-year yield since June 2007 […]

READ MORE →

China Adds 10 More Tons of Gold to Its Hoard

the country of china shown on a globeChina bought gold for the eighth straight month in July, adding another 10 tons to its rapidly growing hoard. The recent purchases boosted the People’s Bank of China’s gold reserves to 62.26 million ounces – about 1, 945 tons.  China has added about 94 tons of gold to its stash over the past eight months.

READ MORE →

The Fed Has the US Economy on Life Support

The Federal Reserve has the US economy on monetary life support and Daily Reckoning managing editor Brian Maher says it will never again breathe on its own. As hedge fund manager Kyle Bass put it, the economy is trapped within the inescapable tractor beam of zero percent interest rates.

READ MORE →

2019 Federal Budget Deficit Already Above 2018 Number

The federal government continues to spend America into a black hole and has already topped last year’s budget deficit with two months left in the fiscal year. The US budget deficit in July came in at $120 billion thanks to a surge in spending, according to data released by the Treasury Department. Uncle Sam spent […]

READ MORE →

Is the Mainstream Turning Bullish on Gold?

In a podcast a couple of weeks ago, Peter Schiff said we now have all the elements of a gold bull market. Well, it looks like the mainstream might be starting to catch on. A headline at Bloomberg on Friday proclaimed “Hedge Funds Go All-In on Gold.” According to the Bloomberg report, hedge funds increased […]

READ MORE →

Comments are closed.

Call Now