I have written several blogs over the last six months about the national debt and how it may challenge many assumptions about the American economy as well as the American way of life. I am writing again because those challenges just became more imminent.
To refresh the facts this is a picture of our national debt:
This is a chart that shows the change in interest rates for the 10 year Treasury from 2016 to today:
The latest report from the US Treasury for the fiscal year ended 2017 suggests that the primary deficit ( not including interest on US debt as an expense) will shrink through 2021. Thereafter it will accelerate with the US Treasury concluding that the “debt-to-GDP ratio after 2026 indicates the current fiscal policy is unsustainable.”
From my point of view this prediction just got worse in light of two new variables that were not considered when the 2017 Annual Report was created:
- Tax reform makes revenue significantly less in 2018 and beyond so the primary deficit will be worse and the prediction of declines until 2021 is probably off the table?
- Interest rates on re-fundings of US Debt are rising and are likely to increase throughout 2018.
- So, the primary debt (before interest) will be worse than predicted and the total annual deficit (including interest payments) will be dramatically worse.
The Annual Report says that interest payments account for 6% of the $4.5 Trillion of costs or $270 Billion annually. There is no footnote suggesting the interest rate assumption but $270 Billion is about 1.3% of the $21 Trillion. This is an amazingly low cost of funding compared to the average interest rate on the 10-year treasury has been 6.23% since January of 1962.
Trump politics have made things worse. The prospect of Democrats controlling both houses of Congress and legislating more of a welfare state should scare anyone who can multiply.
