Thursday, March 31, 2016

In CBO’s Projections, a Growing Reason to Worry About the Federal Debt

In CBO’s Projections, a Growing Reason to Worry About the Federal Debt - Washington Wire - WSJ
"Convincing Americans that they should worry about the federal deficit and debt is tough, despite all those warnings about the inevitable crisis.
Brookings Institution chart of projected increase in interest obligations on federal debt, based on data from the Office of Management and Budget and the Congressional Budget Office.The federal debt, the sum total of all the government’s past borrowing, is huge by historical standards: bigger as a share of the economy than at any time in U.S. history except for World War II. Yet the U.S. Treasury still is able to borrow billions every day at very low interest rates. Investors demand less than 2% to lend to the Treasury for 10 years.
But the trajectory of the debt is worrisome for one inescapable reason:
When you owe a lot of money and interest rates rise, your interest tab mounts.
Today, interest consumes a bit more than 6% of all federal outlays. 
But the latest Congressional Budget Office baseline projections suggest that, without new tax or spending legislation, interest will account for more than 13% of all federal outlays in 2026. 
That’s partly because interest rates are expected to rise from today’s very low levels; CBO expects the average yield on 10-year Treasury notes, now around 1.9%, to climb to 4.1% over the next decade.
There will also be more debt on which to pay interest because the government will be borrowing each year to cover the deficit."

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