Did you know that for every taxpaying citizen, the government has to pay $3,960 every year just to keep up with the interest that has to be paid servicing the national debt? And the interest rates the Treasury has to pay are rather low right now (about 2.43% overall), thanks in large part to the Federal Reserve helping to buy up much of the debt. Back in 2013 I saw one article that stated the Federal Reserve was buying more than half of the newly issued U.S. Treasury debt for that year, and that this was seen as a concerning indicator because it meant the Treasury was starting to have difficulty finding investors to buy its debt. Historically, the interest rates for the U.S. to borrow money have been rather higher, maybe around 4% (although interest rates exceeded 8% in the late 70s to 1990 ). And higher inflation certainly puts an upward pressure on interest rates, such as what will happen if the Fed keeps issuing more money to buy up Treasury debt attempting to keep the interest rates down. Currently the amount of the national debt is nearly 20 times the amount of currency in issue, so it's not as if the Fed could easily write off the debt as inflation. So what's going to happen when interest rates start going back up? It may become more difficult to keep servicing that national debt.
Sooner or later the US will have problems financing its debt. For now it should be fine though, as long as it doesn't increase its deficit. It'd be better if it can reduce its deficit further though.
For the debt to stop growing the U.S. would have to reduce the annual deficit to zero. The deficit is just how much more the U.S. keeps throwing onto the big pile of debt every year. Even if the deficit doesn't increase, the amount of debt does. Politicians act like reducing the budget deficit is all that needs to be done. The debt is still growing.
Yes it will make it more expensive to service debt as interest climbs and new bonds need to be sold. The fed buying up bonds, however, is how it keeps interest rates low. The logic is this: The more they buy, the fewer there are on the market. The fewer there are on the open market, the more desirable they are to purchasers. The more desirable they are to purchasers on the open market, the lower the yields need to be to find a purchaser.
Unfortunately there's no way around the problem (or "no free lunch" as they say in economics). The Fed issuing more money to buy up more bonds to try to keep interest rates down ends up diluting the reserve assets on their balance sheet backing the currency. If investors sniff future inflation, they will demand higher interest rates from the Treasury to buy the debt. This debt has to continually be reserviced. That means the bonds periodically become due and the U.S. Treasury has to find someone else willing to buy the debt. As much as the Fed may try to keep interest rates down, their actions just end up causing inflation and driving interest rates upwards, so the overall effect becomes nullified.
As long as the rise happens on the next person's watch, it doesn't matter. Won't interfere with their speaking fees and street cred as a monetary genius one bit. I am not saying I approve of monetizing the national debt, but it is what it is. If I had been the Emperor, our response to the Great Recession would have been far more drastic and the consequences far more immediate and severe, but that is because I think about 30 years from now, and am not afraid to rip the band aid off. Poor people are used to being poor and I don't care so much for Wall Street. I would have sent many people jumping out windows.
I think that the US deficit is currently under 3%. If the percentage by which the economy grows is higher than the deficit (e.g. 5% growth and 2% deficit) then the debt to GDP ratio will fall. Also a more accurate measure of how difficult it is for a country to finance its debt is the debt interest payments to GDP or debt interest payments to revenue statistics. In any case the US does have to freeze some spending now or it will regret it later.
Yes, but it's easier for a wealthy country with a smaller population to collect high taxes than it is for a country with a bigger population, even if their overall economies both have the same GDP. When a big chunk of your economy's GDP is composed of people who are struggling to get by, raising taxes to start paying off national debt could have disastrous effects. The GDP of the U.S. may have grown in the last 25 years but it's per capita GDP has basically not. It is not a wise idea to borrow money based on projections of future revenue increase. It is possible there might not be any increases in economic growth. What would the country do then?
What you're saying is true I guess but I'm not saying that. I'm saying that if you have two countries with a debt to GDP ratio of 80%, it doesn't mean that both countries can service their debts equally. If one of them pays a higher interest on its debt, for example 10% of GDP or 10% of revenue, it'll have a way harder time repaying its debt than the country that pays just 4% on interest.
But interest rates are not fixed, they are variable. Much of the U.S. debt is in 5-year Treasury bills. The U.S. has to pay higher interest rates to be able to induce investors to buy longer term debt. The interest rate could be 2% today and 10% tomorrow. The average length of debt maturity (about 5.5 years for U.S. debt now) will determine how fast the average interest on the overall national debt can change if interest rates change. 5.5 years is not a lot of time to adjust. Imagine if the percent of the annual budget going to service the national debt went from 6% (what it is now) to 15%. That could really start eating into the budget. And this is just the annual payments required to service the debt, not to pay it down.
