In 2009, 2010, and 2011 respectively, the Greek government’s interest payments as a share of revenue were 13.4%, 14.7%, and 16.8% respectively, based on the 2012 IMF report.1 If one subtracts “Public Contributions” linked to government programs from the income ratio, the ratio rises to 24.1% in 2011. Of course, since Greece adopted the euro it has not controlled its money supply, so investors may be justifiably worried. in terms of actual delinquency as opposed to debt capitalization.
Where is the interest of the US federal government today? Using Table 1-1 from the most recent (June 2024) updates to the Budget and Economic Outlook from the Congressional Budget Office (CBO), interest expense as a share of federal income would be 18.2% this year ($892 billion in interest on $4.890 trillion in revenue) and 20.2% by 2025 ($1.016 trillion in interest on $5.038 trillion in revenue), with no change in taxes or spending.
I’m more optimistic about this news than most people I know, but this is still a troubling issue. As for the CBO projections:
As the last part of the dashed green line on the graph shows, the CBO expects the average interest rate on the federal debt to remain unchanged over the next 10 years, sitting at 3.36% and 3.38% in 2025 and 2034, respectively.3
Does this reasoning make sense?
And this oopsie-doopsie:
But let’s not ask what would happen to interest payments if the average interest rate on the national debt were to reach its 1982 level of 9.2%, or its 1991 level of 7.2%. Instead, let’s just consider what would happen if over the next ten years interest rates slowly higher each year, growing by 1.0% average difference in 2034. That is, instead of ending the next 10 years where we started, below 3.4% as the CBO predicts, what if the federal government’s average interest rate paid on its debt reached only 4.4%?
The following graph shows that if this happens under current law, interest payments will increase 29.7% of income and 40.4% of income excluding Social Security OASDI tax payments. If you think there will be enthusiasm for accessing Social Security tax dollars for non-Social Security purposes, remember that starting in 2035 the income from those taxes will only be able to fund 83% of benefits.
Here is the whole story.
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