As we head toward the end of the year, the media’s fixation with the
congressionally imposed “fiscal cliff” will reach a fever pitch and no
doubt become a major factor in the presidential campaign. The danger is
supposed to arise from the simultaneous implementation of $2 trillion in
automatic spending “cuts” (in reality, just reductions in the rate by
which federal spending increases) and the expiration of the George W.
Bush-era tax rates. Most economists fear that higher taxes and slower
increases in federal spending will combine to send us back into
recession. Despite the hand-wringing, it is certain that the lame-duck Congress
will slap together a late-December, last-minute, can-kicking compromise
that will buy time at the expense of long-term solvency. Any success in
wriggling out of this particular budgetary straitjacket will just make
it more certain that we head straight for another, larger, fiscal cliff
that is hiding in plain sight.
As it is constructed currently, the U.S. budget will be completely and thoroughly upended when interest rates approach levels that would be considered normal by historical standards. A mere 5 percent rate portends a clear and present danger to the budgetary priories of the United States.
The current national debt is about $16 trillion. This is just the funded portion — the unfunded liabilities of the Treasury, such as Social Security and Medicare, and off-budget items, such as guaranteed mortgages and student loans, loom much larger. Our recent era of unprecedented fiscal irresponsibility means we are throwing an additional $1 trillion or more on the pile every year. The only reason this staggering debt load hasn’t crushed us already is that the Treasury has been able to service it through historically low interest rates (now below 2 percent). These easy terms keep debt-service payments to a relatively manageable $300 billion per year.
As it is constructed currently, the U.S. budget will be completely and thoroughly upended when interest rates approach levels that would be considered normal by historical standards. A mere 5 percent rate portends a clear and present danger to the budgetary priories of the United States.
The current national debt is about $16 trillion. This is just the funded portion — the unfunded liabilities of the Treasury, such as Social Security and Medicare, and off-budget items, such as guaranteed mortgages and student loans, loom much larger. Our recent era of unprecedented fiscal irresponsibility means we are throwing an additional $1 trillion or more on the pile every year. The only reason this staggering debt load hasn’t crushed us already is that the Treasury has been able to service it through historically low interest rates (now below 2 percent). These easy terms keep debt-service payments to a relatively manageable $300 billion per year.
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