Borrowing money now and paying it back later has a cost. For the United States, that cost is over $5 trillion.
That figure is the Congressional Budget Office’s estimate of how much money Washington will pay over the next ten years to cover interest payments on debt. That’s more than half the $11 trillion in government debt the CBO estimates the public will own in the next decade. The estimate operates on the assumption that several key fiscal policies, including the Bush-era tax cuts, stay in place.
What does this mean practically? If the estimate holds true, 14% of all the revenue the federal government takes in will go into interest payments. Interest costs will be higher than spending on Medicaid, close to equal to spending on defense, and half of what we spend on social security.
Depending on how much interest rates increase on treasury bonds, the damage could be even worse. A 1% increase above the current CBO estimates would add an extra $1 trillion to the bill over the course of the decade. Of course, a decrease in the yield rates would lead to a decrease in the borrowing cost. Still, with 40% of our debt held by individuals and institutions outside the United States, Americans should keep a careful watch on how Washington handles the federal budget going forward.
– Benjamin Nanamaker, InvestorPlace Money & Politics Editor
The opinions contained in this column are solely those of the writer.
Want to share your own views on money, politics and the 2012 elections? Drop us a line at firstname.lastname@example.org and we might reprint your views in our InvestorPolitics blog! Please include your name, city and state of residence. All letters submitted to this address will be considered for publication.