Deficit, debt, interest payments; no problem‼️ While the annual deficit has declined slightly in the last few years, that’s only part of the story. The debt is still growing and the interest paid on that debt is a lurking problem. For a closer look at our historical deficits and debt look here. There is blame enough to go around.
CBO’s Projection of Federal Interest Payments
Posted by Wendy Edelberg on September 3, 2014
Federal debt held by the public will reach about $12.8 trillion by the end of this fiscal year, an amount that equals 74 percent of the nation’s total output (gross domestic product, or GDP) this year. If current laws generally remained unchanged—the assumption that underlies CBO’s baseline projections—CBO projects that such debt would climb to $20.6 trillion, or 77 percent of GDP, in 2024.
Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO’s baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3 percent of GDP, to $799 billion in 2014, or 3.0 percent of GDP—the highest ratio since 1996. The rising debt accounts for some of that increase, but much of it stems from CBO’s expectation that—largely owing to the improving economy—the average interest rate paid on that debt will more than double over the next 10 years, from 1.8 percent in 2014 to 3.9 percent in 2024. (Although interest rates are projected to rise sharply, CBO’s current projections of those rates are lower than its projections earlier in the year, reflecting the agency’s reassessment of the factors influencing real interest rates.)
This blog post highlights some of the discussion about federal interest costs in An Update to the Budget and Economic Outlook: 2014 to 2024, which CBO released last week.
Projected Federal Debt
Federal debt held by the public consists mostly of securities that the Treasury issues to raise cash to fund the federal government’s activities and to pay off its maturing liabilities. It does not include Treasury securities held by federal trust funds and other government accounts; interest payments on those securities are intragovernmental transactions, which appear in the budget as interest costs to the Treasury and receipts to the trust funds and other accounts, having no net effect on the federal deficit. (For more discussion, see CBO’s report Federal Debt and Interest Costs.)
The net amount that the Treasury borrows by selling securities to the public (the amounts that are sold minus the amounts that have matured) is influenced primarily by the annual budget deficit. In addition, the Treasury borrows to provide financing for student loans and other credit programs; the budget reflects the projected subsidy costs for those programs, rather than the cash disbursements. In its baseline projections, CBO projects that—if current laws generally remain unchanged—federal deficits would total $7.2 trillion between 2015 and 2024 and additional borrowing, often called “other means of financing,” would total roughly $560 billion during that period. After accounting for all of the government’s borrowing needs, CBO projects that debt held by the public would rise by $7.8 trillion between the end of 2014 and the end of 2024, an increase of more than 60 percent. The debt measured as a percentage of GDP would also rise, but not as dramatically because the economy will also grow over that period.
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