Continuing his efforts to draw attention to the nation’s growing debt, and the budgeting problems that he believes are a major driver of the debt, Georgia Senator David Perdue released the third video, which explains how expected rising interest rates on the national debt will cause the country’s debt service to rise dramatically.
In the video, Senator Perdue points out that should interest rates revert to their 50 year average, the nation would be paying $1 trillion in dept service annually, more than twice what we currently pay for national defense. You can read a transcript of the video below the fold.
The first two videos in this series on the debt focused on dysfunction in Washington and Congress’s broken budget process.
In the first video, we talked about the fact that Washington is doing many things we cannot afford and how the national debt crisis is interlocked with this global security crisis.
In the second video, we discussed how the broken budget process is not serving to control the growth of the debt. The budget process, as we discussed, has only worked four times in the last 40 years.
Both of these issues have led us to a point where we cannot afford to support our country’s national priorities—including the very defense of our country.
It’s pretty clear we are already well past the tipping point in this debt crisis and in this video, we will discuss how it could get much worse before it gets better.
Washington has been borrowing large sums of money at low interest rates for years. This should have been a wakeup call, setting off alarms across the country.
But most politicians, especially President Obama, do not seem overly concerned.
The Federal Reserve artificially held interest rates low for seven years due to weak economic growth, market volatility, and stagnant wages—until last December when interest rates, for the first time in seven years, were raised just a quarter of a point.
While this rate hike sounds minimal, it amounted to $50 billion of new interest every single year.
Folks, that is only a quarter of a point. Imagine what happens if interest rates climb even higher—and they will.
In a recent speech, Federal Reserve Chairwoman Janet Yellen said, ‘Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy.’
Additionally, Atlanta Federal Reserve Chairman Dennis Lockhart has said while he does not expect four interest rate increases this year, he does think, ‘there is scope for three rate hikes’ in 2016.
If they occur, these interest rate increases will increase our interest payments significantly. This will either reduce the amount of money we have to spend on discretionary items—like the military, education, infrastructure projects, and foreign aid – or it will increase our growing federal debt.
As you can see from this chart, interest rates historically have fluctuated quite a bit over the last 50 years. We saw interest rates climb in the late 1970s to the high teens. As a matter of fact, in 1981 interest rates nearly hit 20 percent.
Now imagine, if interest rates return to their 50-year average of just over 5 percent, we would be paying almost $1 trillion dollars of interest on the current federal debt. That’s more than twice of what our country now spends on national defense.
This is just unmanageable. Congress must deal with this crisis right now.
As a matter of fact, Congressional Budget Office projections include a dramatic increase in interest rates over just the next few years.
Equally as concerning, the Congressional Budget Office has projected the national debt will grow to $30 trillion over the next 10 years unless something is done right now.
One thing’s for certain, if Congress keeps spending and interest rates continue to go up, as expected, a lot less of our government’s budget will go toward Americans’ priorities and the national defense—and our debt will rise at an even more rapid rate.
Because of the size of the debt, the interest we pay on the debt is critical. We’ve been fortunate over the past few years to have artificially low interest rates. As rates rise, interest expense will go up dramatically and put pressure on other spending priorities.
In this video series we are highlighting the two crises, how they’re interconnected, and what must be done to dig our way out of this crisis. We simply have to change the budget process, eliminate redundant agencies, grow the economy, save Social Security and Medicare, and reduce our health care costs.
The longer we wait, the more difficult it will be to change trajectory of our growing national debt, which threatens our ability to defend our country and our very way of life.
Just as we cannot afford all of the things we are doing financially, we simply cannot afford to wait any longer to solve this problem.”