According to CBO’s most recent long-term projections, net interest will become the largest “program”in the federal budget — surpassing Social Security in 2051. Rising interest costs also contribute to a vicious cycle of higher debt and additional interest costs.
Any number in the trillions can be hard to grasp. Here are some ways to consider what $12.9 trillion in interest means for America.
Fortunately the MMT (Magic Money Tree) economists in charge say that this doesn’t matter 
Years ago, I heard some luminary proclaim that the only inviolates in the budget were debt service and defense. So, presumably, if defense spending, and the debt,were run up high enough, then they would provide the excuse to end all other government spending.
Steve
Which isn’t actually what MMT says. They do not say debt does not matter. But how it is spent, and when it is spent, does. Also, balanced federal budgets are a great goal that usually end up causing recessions.
iirc, the economy was chugging along pretty well in the late 90s, with a budget pretty close to balanced. Multiple waves of tax cuts for the “JCs” solved that problem.
Steve
Pretty irrelevant though:
Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.
Unfortunately when you try and get foreigners to buy your rising debt they might not be so keen, unless you have rising interest rates as well. Governments can always print money to pay the bills but the trouble is that your currency always end up something like this:
The notes are probably worth more now than when they were issued
Exactly! As I pointed out in my post about the $50 Billion proposal for high speed rail between NYC and Boston. If we got $50 billion of taxpayers money to blow up Gaza, we got $50 Billion that could be spent on something productive that actually improves the US domestic economy.
intercst
Thus the wisdom in low interest rates. The only constituency I see for high interest rates is old ladies craving fixed income while being afraid of the stock market.
Any number in the trillions can be hard to grasp.
Not for Americans. We happily incinerated $5 Trillion in the Middle East over the past 25 years in our expensive and embarrassing misadventures there. It’s one of the reasons we don’t have universal health care like the rest of the industrialized world.
intercst
I wouldn’t mind higher interest rates!
The problem is that the markets might want high interest rates to hold US debt.
Traditionally interest rates were there to reward savers, the higher the risk the higher the reward. Bond yields may force rates up. The Fed. could always come in as a buyer of debt but that would bring other problems.
I’m reminded of the old saying ‘there’s no such thing as a free lunch’
Somebody gets it! Plus the required extra characters
But they DO need to be shaped by something. All the above says is that the deficit alone is insufficient to say the spending is bad. WHAT MATTERS IS WHAT THE MONEY IS SPENT ON, AND WHEN IT IS SPENT. But a “fear of rising national debt” is not one of the things to worry about.
You might find out differently in the next few years
Remember your Goldstein. The advantage of war spending is the product is immediately destroyed. Therefore there is continuous need for more product to be produced, so it too can be immediately destroyed. Once the track is laid, and the rolling stock built, the big spending on a rail project is done, because the track and rolling stock is not destroyed, so no need for more to be immediately produced.
Steve…war is a make work project.
If the conservatives in this country truly felt the deficit was a problem they would never enacted the tax cuts they did under the former guy. Tax cuts which added more to the deficit in 4 years than anyone else had managed to do in 8. So no, I’m not worried. Because, in all honesty, they aren’t worried either.
MMT is just a rebranded collection of widely accepted economic principles that have been around for decades. There is nothing in MMT that says you can print money to infinity because you wind up with inflation. MMT requires taxes to remove money from the economy. So there is no free money. That is a misconception. The only part that is perhaps a bit controversial is claim that debt does not pose a particular problem. But again, that is in the context of that there is no free money and not a new concept.
Let’s do a reality check. The US debt has doubled in the last 10 years from $17 trillion to $34 trillion. Those are very large numbers. Austrian economists would say that all that money printing should be causing inflation.
However, CPI inflation over the last 12 months is 3%, which is lower than the long term average since WWII of 3.5%. If debt causes inflation, how can that be possible? And currently, the 20-year Treasury is about 4.5%. Which means the bond market is expecting low inflation going forward. 4.5% is very low rate. Except for the last dozen or so years, 20-year rates have been higher than that all my life.
If debt causes inflation, then the bond markets are wildly mispriced to the point of complete insanity. If what you are saying is correct, then you want to get in bond futures where you can really make a bundle.
And finally, we don’t need foreigners to buy our debt. Every month, the government writes a whole bunch of checks. Payroll, physical plants, weapons, Medicare, the whole gammit. And it doesn’t have enough cash on hand to cover it. The Treasury didn’t sign off on this and neither did the Fed. Congress said “write some checks” and the checks got written. Then all this money that just got created out of thin air winds up in bank accounts. What do the banks do with it? They buy bonds. In other words, deficit spending creates the demand for bonds.
And as a reality check, Japan has run enormous deficits since 1988. No problem at all selling bonds even with interest rates near zero.
Do balanced budgets actually cause recessions, or do recessions (and the need to stimulate the economy by government spending in excess of income) cause the end of balanced budgets?
–Peter
What are you saying? Am I now worth some significant portion of 100 Trillion dollars? Oh say it is so! I have mine decorating my wall!
JimA
You think as Clinton and Greenspan deregulated banking they did not know a great depression was in the offing? You think Ben Bernanke being appointed Chairman of the FED was a mistake? Even though it was well before the depression?
You think pinning the great depression on individual pain was not purposeful?
We kept our institutions to stay competitive with China.
Zimbabwe 100 Trillion Dollar notes are probably worth more now than when they were issued
They used to sell for 5 USD to tourists at Harare airport.
It is because the US is “exporting” inflation out of the country by running a massive trade deficit. China and the EU are aging rapidly. As a result, domestic consumption is not sufficient to reach their desired rate of GDP growth if trade is balanced. Fortunately, the US is around to buy their excess goods. Imports to the US reduces consumer prices and increases unemployment, both of which are deflationary.
The impact of a negative trade imbalance on the US is deflationary.
The trade deficit with China is narrowing but because of a trade issue the US has suddenly imported a lot of supply parts from China before Biden’s tariffs hit.
Expect the trade deficit with China to become a surplus as we continue to retool.