How High Could Budget Outlays on Interest Go?

American Thinker ^ | 11 Jan, 2022 | Christopher Chantrill

[MtnClimber]

Everybody is wondering what is coming up in the near future as the Federal Reserve Board starts to respond to the current “temporary” surge in inflation.

Everybody is wondering what is coming up in the near future as the Federal Reserve Board starts to respond to the current “temporary” surge in inflation. My pal Curtis Yarvin has a nearly incomprehensible piece on “Stagflation and neo-chartalism” on his Gray Mirror Substack. But I did learn something from him, that AOC’s favorite Modern Monetary Theory is an update of “Chartalism,” a theory that…

SNIP

Whatabout now? Well, my Federal Budget Interest page allows you to put in your own forecast of interest rates out to FY26, so if you are a congressional aide or staffer hiding behind a tilt-up vehicle barrier in Washington D.C. quivering with fright about the possibility of armed insurrectionists materializing in battalion strength at any moment! from behind the National Museum of the American Indian, you could try to calm your nerves by looking on my site and testing various interest rate scenarios. Okay, so you are quivering so much you can’t even. So here is my look at federal interest payments out through FY26 where I assume that the average interest rate by 2026 on the federal debt is 3.5 percent. I am assuming that the courageous Fed under Jerome Powell would courageously raise interest rates by 0.5 percent per year.

That would mean that federal interest payments by FY26 would cost 5.1 percent of GDP, compared to a peak cost of 3.1 percent of GDP during the 1980s fight against inflation.

But, frankly, I expect that the Fed is going to have to raise interest rates faster than that, and higher than that.

[MtnClimber]

Politicians are financial morons or they are so power hungry that they don’t care.

[griswold3]

Tools the government uses to fight inflation…
Raise Interest Rates
Hike All Taxes
Start a War.
What are the others?

[glorgau]

Not to worry, we’ll just put the interest charges on the credit card. It can always be paid off with the increase in home equity.

[DoodleDawg]

If Congress would do its job and balance the budget then we wouldn’t have to worry so much about the cost of funding the debt. Fat chance of that happening though.