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Low interest rates doesn't mean U.S. will pay less
By Catholic Online (NEWS CONSORTIUM)
March 5th, 2012
Catholic Online (www.catholic.org)
March 5th, 2012
Catholic Online (www.catholic.org)
Interest rates on U.S. bonds may be low for now, but there's a catch.
Low interest rates don't mean that the country's future interest
payments on the national debt will be. The U.S. government, along with
the American people, will shell out more than $5 trillion in interest
payments over the 10 years, according to the latest projections from the
Congressional Budget Office.
Over the past decade, more than 14 percent of all revenue the government is projected to collect will be sucked up by interest payments, which is an awful lot of money that could be going to the country's other priorities.
Between 2013 and 2022, estimated interest costs will be higher than Medicaid spending; equal to half of Social Security spending and close to what is spent on all of defense.
These estimated interest costs assume a fairly steady and moderate increase in rates over the decade.
The CBO assumes that the yield on the 10-year Treasury will rise from an estimated 2.3 percent this year to 5 percent by the end of the decade; and the yield on the 3-month T-bill will increase from 0.1 percent to 3.8 percent during the same time.
If it turns out that rates rise only one percentage point higher than CBO projects, which could add roughly $1 trillion to interest costs over the decade.
However -- on the bright side, CBO's rate forecasts are higher than what the markets expect, CBO Director Douglas Elmendorf told lawmakers in February.
Rates could stay even lower than CBO projects if the United States remains a safe haven in the face of European debt crises or if the economy does better than expected.
"I think a particular risk over the coming decade is that interest rates will rise further and more sharply than we have in the projection," Elmendorf says.
However things turn out, a lot of the money paid in interest will go abroad, said Charles Konigsberg, president of the Federal Budget Group. More than 40 percent of the country's public debt is owed to institutions and individuals outside the United States.
Those trying to score political points may well express terror at the money that will be going out the window. But voters might want to check that those politicians are putting their fiscal plans where their mouths are.
This is where many of today's politicians are falling short. A recent analysis from the independent Committee for a Responsible Federal Budget estimates that three of the four GOP presidential candidates' economic plans would increase deficits and interest costs -- some substantially.
Newt Gingrich's economic plan could raise interest costs by $900 billion over the next decade; Rick Santorum's by $640 billion; and Mitt Romney's by $40 billion. But that number could rise substantially if he doesn't find enough measures to offset the costs of his latest tax cut proposals.
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