That's a paraphrase from Robert Bixby, quoted in today's NYTimes, noting that interest rates and interest charges on the debt are very low by historical standards, especially relative to the size of the debt and the size of the expected continuing deficit. I love the phrase and the concept.
Here is more:
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
Understandably, I am concerned for my children and grandchildren who live in the US. And if the US politicians are unwilling to cut back on outflows, they face two serious possible problems:
- Slipping to the down side of the Laffer Curve (named for Professor Curve), where tax increases can actually lead to reduced tax receipts and an even worse fiscal situation. cf. Sweden in the previous century. Tax hikes will not necessarily get the profligate spenders out of this bind.
- Increased inflation rates as no one other than the Fed is willing to buy the debt -- i.e. massive monetizing of the US debt.
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