Letter: A Worsening Debt Crisis – InForum
Democrats are set to pass an unprecedented $3.5 trillion budget bill on top of $1.2 trillion in new “infrastructure” spending by shoveling billions more into transportation by pool and “green venture capital funds”. Add to that the huge COVID relief bills (from the Cares Act to the US bailout) totaling nearly $6 trillion and is there any wonder the US is now facing a crisis debt like never before?
Last September, the Congressional Budget Office predicted that the federal debt would not reach $29 trillion until 2028. Just a year later, the national debt stands at over $28.7 trillion and is expected to top $29 trillion within weeks. Our entire national income (GDP) stands at $22.72 trillion, but massive federal spending levels since the Great Recession have only driven public debt to 102% of GDP, unheard of since. the end of World War II.
But here’s the worst part, the CBO’s debt estimates don’t include the New Democrats’ spending explosions, including the so-called infrastructure bill and the $3.5 trillion reconciliation package carrying the 2022 federal spending at over $6 trillion (up from $4.8 trillion in 2020).
To finance our debt, the US Treasury must sell bonds. Currently, the interest rate on ten-year Treasury bills is only 1.3%. But from 1990 to 2020, the rate averaged 4.4%. Over the 60 years from 1960 to 2020, it averaged 6.0%. Yet, with estimates showing that our debt will reach $50 trillion by 2030, the CBO is making an “optimistic scenario” assumption: that interest rates on the national debt will not reach 2% until 2027.
But a return to an interest rate of just 4.4% – a three percentage point increase – would add $1.2 trillion to the annual deficit and we would find ourselves borrowing even more just to pay the interest on the debt. we already owe – a certain road to bankruptcy and a sovereign debt crisis similar to that of Greece or Italy.
In June and July, consumer inflation averaged an annual rate of 8.4% . During those same two months, the rate of producer inflation—the prices faced by businesses—climbed to an annual rate of 12.6%.
Interest rates on bonds will eventually have to rise above expected inflation for anyone to want to buy them. I will not lend you money if I expect the total money I get back to be worth less than what I gave you.
The deficit projections will also be bigger than Biden and the Democrats think, because they significantly overestimate revenue from raising taxes. But higher makes people work less. Trump-era tax cuts generated slightly higher revenue than the previous year.
The explosion of the debt is not only a suffering for the distant generations who will be forced to pay much higher taxes. The safety net for the elderly is directly threatened by rampant spending. With the Senate tied at 50-50, Democrats’ vote Sens. Amy Klobuchar or Tina Smith against raising the debt ceiling this fall could help end this impending debt crisis.
They won’t, which is why they are a big part of the problem.
John R. Lott Jr. is the president of the Center for Crime Prevention Research and former Rep. Jason Lewis was the 2020 Republican nominee for U.S. Senate from Minnesota.
This letter does not necessarily reflect the opinion of the Forum Editorial Board or the owners of the Forum.