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Uh, Obama? We Have a Problem: Interest Expense to Hit $1 Trillion in 4 Years
Townhall.com ^ | February 6, 2013 | John Ransom

Posted on 02/06/2013 4:15:43 AM PST by Kaslin

I hate to interrupt Obama’s “We Don’t Have a Spending Problem” World Tour. But reality intervened on Tuesday as the Congressional Budget Office released a report that says that the budget deficit will grow through 2023 and “will eventually require the government to raise taxes, reduce benefits and services, or undertake some combination of those two actions,” reports CBSNews- and all of that just to cover interest payments.

“In its annual Budget and Economic Outlook,” writes CBSNews, “the CBO said debt held by the public will be bigger by 2023 than in any year since 1951 and will be at 77 percent of gross domestic product (GDP) by 2023, far above the 40-year average of 39 percent of GDP. As a result, the CBO report said, the federal government’s interest costs ‘will be very high’ and will be rising. Interest costs will more than double by the end of the ten-year forecasting period.”

The CBO projects that interest rates on the Ten-Year Treasury Note will rise from 2.1 percent currently, to 5.2 percent in 2017.

In December, the Treasury Department reported that total interest bearing debt owed by the government carried an interest rate of 2.523 percent. Last year’s interest payments on that debt totaled $360 billion. If interest rates overall reflect the CBO’s forecast for the benchmark, interest rates payments alone will reach one trillion dollars by 2017.

Just current debt would require interest payments of 2.5 times 2012 levels or $890 billion. You can add another $100 billion in interest costs for deficits accumulated between 2013 and 2017.

Federal Debt Held by the Public   

http://www.cbo.gov/sites/default/files/cbofiles/images/pubs-images/43xxx/43907-land-SumFigure1.png

If interest rates cooperate, interest on the national debt will be the third largest line item in the budget by 2017, after pensions and healthcare, topping defense spending, education, welfare and likely even Obama’s vacation budget.

If interest rates don’t cooperate and they become infected by inflation, or silly things like…I don’t know…RISK anyone?... then look for interest payments to be the top and biggest line item in any budget.     

So technically Obama doesn’t have a spending problem.  

Obama will be out of office by 2017, so yeah, HE doesn’t have a problem spending all that borrowed money. It’s all of us suckers who have to live in the country after he’s done with it who will have to make the choice between cat food and really large interest payments on the national debt.

The other thorny problem with the CBO forecast is that after this year the report is contingent upon the economy growing “at its maximum sustainable level.”

The CBO pegs GDP growth as modest this year-again- but bets the farm that GDP growth will hit “3.4 percent in 2014 and an average of 3.6 percent a year from 2015 through 2018.”

No offense to the folks at the CBO, but really they should let politico-comedian David Letterman report economics and go to writing jokes full-time. Since 2000, the US economy has grown above 3 percent only twice, 2004 and 2010. With 2 years of getting hits and the other years striking out, that’s not even a batting average.

That’s a disaster.   

No doubt higher government spending could give the economy a temporary boost, as it did in the third quarter of 2012, just in time to save Obama’s re-election campaign. But we’ve plunged from an annual rate of 3.1 percent growth in the third quarter to recessionary activity in the 4th quarter.
If government spending was all that it was cracked up to be, wouldn’t the third quarter have kick-started the economy, rather than killing it?

While idiots like Ezra Klein of the Washington Post argue that government spending needs to be much, much higher and payrolls for the federal government need to be expanded rather than contracted, the result would be catastrophic.

As it is, if we do nothing and let current federal tax rates and spending drift, we’ll spend more on interest than we do on education.

And Democrats, you have a problem: Tell them in 2017 how much you care about kids.   


TOPICS: Business/Economy; Editorial
KEYWORDS:

1 posted on 02/06/2013 4:15:51 AM PST by Kaslin
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To: Kaslin

The US government is currently paying about $400 billion per year in just interest payments.


2 posted on 02/06/2013 4:29:25 AM PST by Jonty30 (What Islam and secularism have in common is that they are both death cults.)
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To: Kaslin

“The CBO pegs GDP growth as modest this year-again- but bets the farm that GDP growth will hit “3.4 percent in 2014 and an average of 3.6 percent a year from 2015 through 2018.”

Q: Did CBO
(a) just pull these 3.4 and 3.6 percent growth figures out of thin air,
(b) have some reason to believe they will be true, or
(c) have these given to them from the administration as working assumptions on which to base their forecasts?


3 posted on 02/06/2013 4:29:49 AM PST by Chad N. Freud (FR is the modern equivalent of the Committees of Correspondence. Let other analogies arise.)
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To: Kaslin

The obamanation regime in DC loves the downfall they caused and would rejoice at America’s backruptcy knowing the left is to stupid to know and the right to weak to stop their evil.


4 posted on 02/06/2013 4:30:36 AM PST by kindred (Jesus Christ is the Lord God and Messiah of Israel, a present help in time of trouble.)
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To: Kaslin
We are rapidly approaching the point were 100% of the Tax receipts taken in, will not cover the cost of servicing the interest on the debit! What happens to the country then?
5 posted on 02/06/2013 4:33:42 AM PST by 2001convSVT (Going Galt as fast as I can.)
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To: Chad N. Freud

If they haven’t been politized, then they are making reasonable guesses as to the economic forecast, based on the numbers they are dealing with.

However, they are only dealing with known numbers. If Obama goes on another huge spending spree, the numbers won’t be accurate.


6 posted on 02/06/2013 4:35:14 AM PST by Jonty30 (What Islam and secularism have in common is that they are both death cults.)
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To: Jonty30

Those numbers are actually low - I’m surprised Townhall is using bad numbers we are closer to 120 percent, not 80. The only thing that’s saving Obama are the very low interest rates for treasuries. That’s it. They are actually lower now then they were in 1998 in terms of absolute values.

Should they hit 5 percent - his budget and the budget for America becomes a disaster. Should the economy remain between 1-2 percent growth or go in a recession, he’s in for a disaster.


7 posted on 02/06/2013 4:43:19 AM PST by JCBreckenridge (Texas is a state of mind - Steinbeck)
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To: Jonty30

Thank you. I was wondering, because I understand that sometimes their hands are tied — they have to issue a forecast based on what ‘garbage-in’ assumptions they are told to use. I was curious if that is the case here.


8 posted on 02/06/2013 4:48:36 AM PST by Chad N. Freud (FR is the modern equivalent of the Committees of Correspondence. Let other analogies arise.)
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To: Kaslin
This analysis completely ignores the length of term of the debt currently held (and Operation Twist extended the maturities exactly for this reason). If you look at the internal Excel file (Link) Net Interest expense grows from $223 B in 2012 to $857 B by 2023. Still a significant increase but not "$1 T in 4 years"

The CBO report itself says "At the same time, rising interest rates will significantly increase the government’s debt-service costs." As a percent of the budget net interest expense goes from 6.3% of the budget to 14.4% by 2023. Also the Compound Annual Growth rate (CAGR) of net interest expense from 2012 - 2023 is 13.0% while the CAGR of GDP is 4.8% (laughably high).

9 posted on 02/06/2013 4:52:07 AM PST by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: 2001convSVT
What happens to the country then?

The Left will fan the flames of division. Societal convulsion. Congress at an impasse. "Mr. President, do something." Emergency executive orders to restore safety.

As certain as anything can be, it will end in jackboot authoritarian government.

10 posted on 02/06/2013 4:54:28 AM PST by Jacquerie ("How few were left who had seen the republic!" - Tacitus, The Annals)
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To: Kaslin

Get government out of the business of business, which includes the medical profession all aspects, and related, and into the Constitution where it belongs.


11 posted on 02/06/2013 5:01:01 AM PST by rockinqsranch (Dems, Libs, Socialists, call 'em what you will, they ALL have fairies livin' in their trees.)
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Comment #12 Removed by Moderator

To: Kaslin
the CBO said debt held by the public will be bigger by 2023 than in any year since 1951

Interesting benchmark. Reflective of the Roosevelt/Truman socialist/statist experiments?

13 posted on 02/06/2013 5:02:57 AM PST by smoothsailing
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To: Kaslin
Interest Expense to Hit $1 Trillion in 4 Years

WTF does he care? That POS will be gone; to that arrogant communist ignoramus it's "Mission Accomplished"!

14 posted on 02/06/2013 5:03:28 AM PST by Common Sense 101 (Hey libs... If your theories fly in the face of reality, it's not reality that's wrong.)
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To: 2001convSVT

Not really. Net interest expense according to this CBO file for FY 2013 is expected to be $224B whereas Individual Tax Receipts are expected to be $1.264T or 17.7%. In 2023 net interest is $857B and Individual Tax Receipts are $2.548T or 33.6%. Long way to go before we hit 100% and that’s just Individual Income Taxes.


15 posted on 02/06/2013 5:06:23 AM PST by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: Kaslin; ding_dong_daddy_from_dumas; Gilbo_3; Impy; NFHale; BillyBoy; fieldmarshaldj; Liz; GOPJ; ...
RE :” But reality intervened on Tuesday as the Congressional Budget Office released a report that says that the budget deficit will grow through 2023 and “will eventually require the government to raise taxes, reduce benefits and services, or undertake some combination of those two actions,” reports CBSNews- and all of that just to cover interest payments.”

2023 ?? 10 years?

Ironically the original dead Ryan plan (2011) did nothing for 10 years, and even then would have affected only new recipient's turning 65 after then.

Even now some GOP call for changes to entitlements that dont take effect for a decade, the excuse is ‘keeping our promise’. None call for changes for the near term spending of those, after all those ‘trust funds’ are good for 10 years, right??

Better, when the House GOP called for this much later action it was called ‘saving medicare’. Saving medicare by gutting medicare for much later deficit reduction, vs cutting it for O-care benefits now??? (I cant imagine why didnt this sell.)

So why is passing a bill now that goes into effect in 10 years better than just waiting 10 years and doing it?
Because in the first case congress (GOP in) could take credit for deficit reduction and not be around wen it goes into effect to get the blame.

Candy now, bitter medicine later.

16 posted on 02/06/2013 5:10:41 AM PST by sickoflibs (Losing to Dems and Obama is not a principle! Its just losing.)
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To: Jacquerie
I sure hope not, but your scenario is credible. Perhaps some states could spin themselves out of the mess before it happens.
17 posted on 02/06/2013 5:13:23 AM PST by 2001convSVT (Going Galt as fast as I can.)
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To: Common Sense 101
WTF does he care? That POS will be gone; to that arrogant communist ignoramus it's "Mission Accomplished"!

Don't be so sure. Dictators don't leave easy

18 posted on 02/06/2013 5:15:06 AM PST by Kaslin (He needed the ignorant to reelect him, and he got them. Now we all have to pay the consequenses)
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To: F15Eagle

We may be past the tipping point, but how far past are we? do we have one year or ten years. That is a major reason why I am going Galt as fast as I can. With a hundred acres in the woods in a defendablr location with water and the ability to grow food.


19 posted on 02/06/2013 5:17:02 AM PST by 2001convSVT (Going Galt as fast as I can.)
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To: Kaslin

Things won’t get any better as long as scoundrels run for office and idiots vote for them.


20 posted on 02/06/2013 5:17:21 AM PST by windsorknot
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To: JCBreckenridge

What do you mean Townhall is using bad numbers. Townhall didn’t write the article


21 posted on 02/06/2013 5:22:54 AM PST by Kaslin (He needed the ignorant to reelect him, and he got them. Now we all have to pay the consequenses)
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To: Wyatt's Torch
I believe you are correct with the present interest rates on the debit. But what if inflation kicks in and we have ten and thirty year treasury bonds interest rates go above 8%. I think that 8% is the rate of a ten year bond that will require $1.2T, just to pay off the interest alone.
22 posted on 02/06/2013 5:23:36 AM PST by 2001convSVT (Going Galt as fast as I can.)
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To: Jacquerie

Don’t forget the global scene: rapid and huge shrinkage of the defense budget, inability to defend ourselves, and invitation to enemies to attack a weakened US.


23 posted on 02/06/2013 6:18:11 AM PST by ProtectOurFreedom
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To: Kaslin

That’s not a “bug”, that’s a “feature” -

remember “fundamentally change this country”?

Yeah, that’s a part of it.


24 posted on 02/06/2013 6:20:35 AM PST by MrB (The difference between a Humanist and a Satanist - the latter admits whom he's working for)
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To: 2001convSVT

That’s true but all of the current debt is already locked in at lower rates and doesn’t float. The CBO already assumes 10YR UST (they only project 10YR and 3 month) rates getting up to 5.2% by 1Q17 and remaining flat from there. Current 30-10 yield spreads are around +130 bps so let’s say it’s +150 bps that takes 30Y UST to 6.7%. You can assume that that is pretty close to what is already modeled in the CBO model.

Again, to me the biggest risk is the GDP growth. 4+% CAGR is ridiculous.


25 posted on 02/06/2013 8:02:18 AM PST by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: 2001convSVT

That question’s rhetorical, right?


26 posted on 02/06/2013 5:09:12 PM PST by DuncanWaring (The Lord uses the good ones; the bad ones use the Lord.)
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To: Kaslin

“Virginia moves closer to creating state’s own currency...” - DRUDGE


27 posted on 02/06/2013 5:38:13 PM PST by 4Liberty (Some on our "Roads & Bridges" head to the beach. Others head to their offices, farms, libraries....)
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