There’s Going to Be Hell to Pay

It’s just a matter of how long the U.S. Government can stall before the bill finally comes due. Let’s start with the math. The U.S. national debt now exceeds $31.5 trillion. On the day Joe Biden took office, the average interest rate on this debt was around 1.61 percent and interest payments were a mere $549 billion a year. Since then, higher spending and higher interest rates have accelerated the problem at breakneck speed. As older bonds with the historic low interest rates mature and disappear, they are replaced with the higher interest rate bonds now being issued. According to the St. Louis Federal Reserve, the annualized interest rate cost in December reached an eye-popping $853 billion.

The older, lower interest rate bonds have kept the average at around 2 percent, still much higher than normal. Econofact.org estimates that “most of the current government debt will mature within the next three years,” which means that the federal government will soon be financing most of its $31.5 trillion debt at market rates-which are approaching 4 to 5 percent. We’re looking at a total annual interest bill of over $1 trillion in the very near future. By comparison, the total tax revenue collected by the U.S. government in 2023 is projected to be $4.6 trillion. As soon as next year, interest will consume approximately one-fifth or even a quarter of all government revenue.

That’s not the bad news.

The bad news is that we’re fast approaching the point at which we have to accelerate borrowing just to keep up with the interest payments. The treasury has to find buyers for its whopping $1.4 trillion in deficit spending. And for now, the Federal Reserve is saying it will not buy more treasuries, even to replace the maturing treasuries that roll off its portfolio. 

Until recently, the dollar’s resilience made it possible for the government to effectively fund operations with money from the printing press. But inflation, the offspring of deficit spending, has begun to collect its due from the public. As interest payments claim increasingly more and more of the budget, the government must borrow more to make up the difference, thus accelerating the growth of the debt and inflation. This leads to still higher interest rates which lead to higher interest payments requiring even more borrowing

When you have to borrow money to pay interest on existing debt, you’re in big trouble.

Entitlements such as Social Security, Medicaid, and Medicare, make up the vast majority of the budget. Every year, the bills get bigger as drugs get more expensive and the Social Security Administration indexes existing payments to keep up with inflation. 

It’s hard to say exactly when or how the federal budget will hit some sort of wall. But the scenario I consider most likely is that inflation will reignite as the Federal Reserve backs off its interest rate increases. Get ready to go long for single-digit inflation.

Unfortunately, the same geniuses who enabled politicians to run up these irresponsible debts will also be in charge of helping politicians set inflation-fighting policies. For the Left, the go-to tools never work but will always be tried because of political ideology. These include wage and price controls, tax increases, and criminalizing market pricing as “price gouging” or “hoarding.” As taxes go up and the government attempts to regulate its way out of inflation, economic output falls. If the fall is drastic enough, it can have a counterinflationary effect. But only after inflicting extreme misery on working Americans.

In the 1980s, Reagan’s formula of low taxes, less regulation, and higher interest rates created the conditions to dramatically reverse the Carter economic malaise, an era often compared to the present. While really smart economists will argue that the economy is totally dependent on government spending, this is sophistry. Government spending degrades efficient and wealth-enhancing transactions. The government gets its money by taking value out of a legitimate economic transaction and redistributing it to a political objective. Low-interest rates encourage scams and enable marginal businesses to chug along. 

Profit, not borrowed money, is the key to economic revival. Produce things that legitimately add to the stock of goods and services, and you will increase national income. Shift money around with loans and government grants, and you will idle otherwise productive resources as people chase free money. 

Economic freedom isn’t about helping the rich. If anything, the opposite is true. During the economic expansion that followed Reagan’s reforms, income inequality fell. The percentage of low-income houses fell from 27 percent in 1980 to 25.3 percent in 1989. In contrast, economic inequality increased under Obama’s economic policies. The dirty little secret of leftist economic theories is that they benefit powerful people who are in a position to influence economic meddling. Who do you think got most of the COVID relief money?

Historians will scratch their heads and wonder why Americans spent so much time obsessing over Ukraine and gender identity while the debt piled up to catastrophic levels. Unfortunately, the people who govern us simply refuse to adhere to basic rules of fiscal discipline. Through ignorance or craven corruption, they continue aggressively driving up debt to unprecedented levels. These are civilization-ending debts and the people incurring them for the sake of feel-good social priorities will be justifiably cursed when the consequences finally come.

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About Adam Mill

Adam Mill is a pen name. He is an adjunct fellow of the Center for American Greatness and works in Kansas City, Missouri as an attorney specializing in labor and employment and public administration law. He graduated from the University of Kansas and has been admitted to practice in Kansas and Missouri. Mill has contributed to The Federalist, American Greatness, and The Daily Caller.

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