Letter: National debt is an immediate crisis
Posted on Jan 22, 2014 - 01:27 PM Printer Friendly View
The Federal Reserve’s massive money printing must ultimately result in a significant rise in inflation, creating rising prices, interest and wages. Unfortunately, it is the rising interest rate that poses the greatest threat to our struggling economy.
Not only will inflationary pressures be brought to bear on prices and the home market, but consider for a moment the increasing cost of servicing the national debt. With the debt having recently surpassed the GDP, the U.S. faces an inevitable rise in inflation with a subsequent increase in the interest rate as a result of the massive money printing. The question then becomes, at what point will the cost of servicing the national debt become critical?
Considering that the average interest rate over a 24-year period from 1988 to 2011 was just under 5 percent, if we use a 5 percent interest rate on, shall we say, a $20 trillion national debt that forecasts a debt payment of $1 trillion.
At the current time, many economists view the national debt as the single greatest internal threat confronting this nation since the Civil War. To put the debt in some perspective, the average household owes $136,200 of their share of that debt. When President Obama took office in 2009, the national debt was $11.9 trillion. At the end of his first term, the national debt exceeded $16.4 trillion, a 46 percent increase. With the current and ever-increasing debt, the question that must be answered is, if the interest rate returns to the norm of the past 24-year period (about 5 or 6 percent), will the growth in GDP generate sufficient revenue to offset the increased debt service on the national debt?
While it is not possible to forecast how the pain of the national debt problem will pay out as interest rates rise to normal levels, however it is clear that even though there is no pain now, there will be some very serious pain when normal interest rates return. With an expected rise in the interest rate as a result of burgeoning inflation, the cost of servicing the national debt will increase dramatically.
The policies that could bring about a default are already in place. The inability of the government to balance a budget coupled with the inevitable rise in the interest could well create a default crisis. The current interest required to service the national debt, i.e., $221 billion, comprises 33 percent of the current budget deficit, whereas in 2012 it was a lesser 20 percent of the budget deficit. By this measure, the national debt is an immediate problem.
It is evident that very few people appear to grasp the implications imposed upon the nation by the ever-expanding national debt. This surely includes the politicians responsible for this mess. It is also doubtful if many of the educators truly understand what is happening to the nation as a result of the burgeoning debt.
I am confident that there exists a simpler way to present this information to make it compelling and irresistible. Unfortunately, that simpler way escapes me. Might I instead offer a simple analogy? “A fool and his money are soon parted.” The fool being the federal government and the citizens for permitting it, the money of course being the tax dollars.
Port Haywood, Va.