Today the House voted its disapproval of President Obama’s decision to raise the debt limit by another $1.2 million. Obama's debt limit request comes less than six months after a $900 billion boost. And there is little indication that the trajectory of America’s debt and deficits will improve in the near future.
The longer Washington waits the more difficult it will get to put the nation on a sustainable fiscal path. One of the primary reasons is that as the debt goes up, so do our interest payments, a fact that Representative Jim Jordan (R-OH) made clear today on the House floor.
“Interest payments on the national debt will cost more this year than the entire federal budget did in 1972, and that’s with interest rates at historic lows,” Jordan noted. “We have to stop the crazy spending if we’re going to stop borrowing. Fiddling around the edges won’t get the job done”
According to the CBO the federal government will spend $238 billion on interest this year. And that’s with interest rates around 2.5 percent. To compare, the average rate the federal government paid over the last 20 years was 5.7 percent. As former Federal Reserve governor Lawrence Lindsey explains in the Wall Street Journal, a reversion to those “normalized” rates would have a devastating effect on our budget.
“Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.
The 10-year rise in interest expense would be $4.9 trillion higher under “normalized” rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.”
Sadly, even those numbers may be conservative. As our national debt soars and Washington continues to show no signs of changing its spending habits, bond markets will demand ever higher interest rates to reflect the risk of buying our debt. It’s an issue we need to get a handle on now before it’s too late. And although a resolution of disapproval will do little to alter our fiscal course, it sends a signal that things must change in spend-happy Washington. Now if only the Senate would pass it as well…