Today the House voted its disapproval of President Obama’sdecision to raise the debt limit by another $1.2 million. Obama's debt limit request comes less thansix months after a $900 billion boost. And there is little indication that thetrajectory of America’s debt and deficits will improve in the near future.
The longer Washington waits the more difficult it will getto put the nation on a sustainable fiscal path. One of the primary reasons isthat as the debt goes up, so do our interest payments, a fact that RepresentativeJim Jordan (R-OH) made clear today on the House floor.
“Interest payments on the national debt will cost more thisyear than the entire federal budget did in 1972, and that’s with interest ratesat historic lows,” Jordannoted. “We have to stop the crazy spending if we’re going to stopborrowing. Fiddling around the edges won’t get the job done”
According to the CBO the federal government will spend $238billion on interest this year. And that’s with interest rates around 2.5percent. To compare, the average rate the federal government paid over the last20 years was 5.7 percent. As former Federal Reserve governor Lawrence Lindsey explainsin the WallStreet Journal, a reversion to those “normalized” rates would have adevastating effect on our budget.
“Should we ramp up to the higher number, annual interestexpenses would be roughly $420 billion higher in 2014 and $700 billion higherin 2020.
The 10-year rise in interest expense would be $4.9 trillionhigher under “normalized” rates than under the current cost of borrowing.Compare that to the $2 trillion estimate of what the current talks aboutlong-term deficit reduction may produce, and it becomes obvious that the gainsfrom the current deficit-reduction efforts could be wiped out by normalization inthe bond market.”
Sadly, even those numbers may be conservative. As ournational debt soars and Washington continues to show no signs of changing itsspending habits, bond markets will demand ever higher interest rates to reflectthe risk of buying our debt. It’s an issue we need to get a handle on nowbefore it’s too late. And although a resolution of disapproval will do littleto alter our fiscal course, it sends a signal that things must change inspend-happy Washington. Now if only the Senate would pass it as well…