In mid-2020, the federal debt owned by the public was $17.9 trillion. This didn’t include additional debt owned by federal agencies.
Congress is contemplating increasing the federal debt by several trillion dollars.
According to the Pew Research Center, the average interest rate on the public debt in 2018 was 2.5 percent. (Why a more current percentage isn’t available I do not know.)
Anyway, 2.5 percent is a relatively low number. Back in 1989, the average interest rate on the public debt was more than three times higher – 8.8 percent. Further back, in 1980, the rate was considerably higher than that.
Most experts say there’s no chance in the world that the average interest rate on the public debt will return to 8.8 percent or higher.
Come on! Because of the pandemic, the Federal Reserve Bank has created trillions of dollars just this year. It is now keeping most of the new money out of the hands of the public. But it can’t do that forever. More rapid inflation seems inevitable. When creditors expect the buying power of the dollar to deteriorate, they demand higher interest to offset it. What does all this mean?
-- The portion of federal expenses devoted to paying interest on the public debt is currently only 7.8 percent.
-- But the total public debt will soon rise, and
-- More rapid inflation will make the interest rate on the public debt rise as well.
The result: With these double-barrel negatives, the portion of federal expenses devoted to paying interest on the public debt would rise significantly.
Thirty percent? Forty percent? Such numbers are entirely possible.
If the government has to borrow money just to pay the interest on the debt, it will be close to bankruptcy.
In failing to cut expenses, the federal government is playing with fire.
