A Frightening New Look at the U.S. Debt Problem

 

Let’s take another look at the Congressional Budget Office’s “An Analysis of the President’s 2014 Budget”.  On May 18, I pointed out that his budget projects a deficit of “only” 2% ten years from now in 2023, which amounts to a $542 billion deficit in that year, quite a large amount.
There is actually a clearer and rather frightening way to look at the continuing buildup of debt over the next ten years according to the President’s budget.  On page 4 of the CBO report, year by year projections are given for each of the following: Debt Held by the Public (on which interest is paid), Gross Domestic Product, Net Interest on the Public Debt, and Net Interest as a Percentage of GDP.  The actual amounts for 2012 are: $11.3 trillion in Public Debt, $15.5 trillion GDP, $220 billion Net Interest and 1.4% Net Interest/GDP.  These figures all steadily increase during the next 10 years with projected values for 2023 being: $18.1 trillion in Public Debt, $25.9 trillion GDP, $782 billion Net Interest and 3.0% Net Interest/GDP.
Here’s what is so frightening.  Right now we’re paying 1.4% of GDP as debt interest but GDP is itself growing at about 2%.  So we at least have a small net growth of .6%.  But the 1.4% interest for 2012 and 2013 is projected to keep growing steadily and reach 3% in 2023 and then to continue on growing indefinitely after that.  This means that either our growth rate continues to steadily increase and hits at least 3% by 2023, and then still goes even higher after that or else our economy will begin to stagnate and go backwards.
We are currently on a perilous course, caused by the enormous accumulation of debt over the past few years, on which we will have to pay interest in perpetuity.  It is an urgent matter to rapidly shrink deficit spending way down close to zero in the next few years.  We need to find more effective ways to boost the economy than the excessive public stimulus which has put us into this dreadful current situation.