It will be an issue if the Debt to GDP % doesn’t start coming down faster. The way to do that is to grow GDP. The answer to all of our issues is that we need more robust growth.
Obamacare, another entitlement program, will add to the costs. And with 10,000 baby boomers retiring daily for the next 20 years, doubling the population of those over 65 by 2030 when one in five will be over 65, there is no way we grow ourselves out of this problem.
Does the Fed really have a ‘hidden agenda’ to hide the cost of US debt?
The Drudge Report links to a CNBC.com piece entitled “The Fed’s ‘hidden agenda’ behind money-printing.” The article’s claim: Although the Fed justifies its bond buying program — also known as quantitative easing — as a way to boost economic growth, there’s more to the story. The Fed’s “hidden agenda,” apparently, is the suppression of interest rates so Uncle Sam can more easily finance and afford its growing national debt:
I believe that one of the most important reasons the Fed is determined to keep interest rates low is one that is rarely talked about, and which comprises a dark economic foreboding that should frighten us all. … Thanks to the Fed, the interest rate paid on our national debt is at an historic low of 2.4 percent, according to the Congressional Budget Office. Given the U.S.’s huge accumulated deficit, this low interest rate is important to keep debt servicing costs down.
The piece goes to explore a scenario where US interest rates return to their 20 year average of 5.7%. If the federal government were to pay an average interest rate of 5.7% on its debt versus the 2.4% we pay today, debt service cost in 2020 would be about $930 billion. Here is the kicker: 85% of all personal income taxes collected would go to servicing the debt. And who knows, maybe rates will go even higher “as a result of the massive QE exercise of printing money at an unprecedented rate. We just don’t know what the effect of all this will be but many economists warn that it can only result in inflation down the road.”