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August 17, 2011
$2.4 Trillion
Topics: Political News and commentariesThat's the amount Washington just added to our already exploding debt of $14 trillion:
The accumulated obligations of the U.S. now exceed 100% of America's Gross Domestic Product. We've reached that point at which we are trapped in an economic catch-22.Keep reading; as bad as this sounds, it gets worse.Over the last 150 years or so, the average interest rate paid on cost of capital has been 4%. But these days, interest rates on the federal debt run just 1.25%. That's mostly due to a lack of demand by private companies for borrowing and the fact that the Fed is pumping money into the bond markets to keep interest rates down.
Rates, however, will soon go up. Additional borrowing by the U.S. government -- and the other 181 countries currently running in the red -- will force interest rates to increase as countries race against each other to attract investor money away from stock markets and other liquid assets.
Part one of the catch-22 is this. The U.S. can't afford to borrow money at anything much more than 0% interest. For each percentage point that interest rates rise, it costs an additional $150 billion or so per year to pay the additional interest. For example, if rates were to rise to the historic average of 4% on our entire debt, our annual deficit would increase by an additional $600 billion per year.
Then, on top of this, our Big Spender-in-Chief plans to ask for yet another stimulus from the debt-reduction committee (after all, it's like his spending so far has worked so well, right?).
And as Rick Moran aptly notes, doesn't calling something a deficit reduction committee and then asking it to spend more taxpayer dollars to stimulate the economy seem a bit counterintuitive?
Posted by Richard at August 17, 2011 12:27 PM
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