The Debt and Interest Rates; a Vicious Cycle

The interest on this year’'s debt will cost taxpayers $565 billion, or 4 percent of GDP. That number will only increase in coming years. And naturally, with a shrinking GDP, it will become an ever increasing percentage of the overall economy.

While budget expenditures are increasing, government revenues so far this year have dropped 18 percent from a year ago. Government income and revenues are going in the wrong directions.

Our massive debt will put upward pressure on interest rates.

According to government projections, each 1% rise in interest rates will add $50 billion annually to the debt, and eventually $170 billion annually over time.

If the economy were to recover, demand for credit by the private sector would rise, meaning the government’s borrowing costs would also increase. That would raise interest rates for everyone. This makes for an odd conundrum; do we hope for a recovery at the expense of higher interest rates?

So we've begun a vicious cycle; the growing debt will eventually increase interest rates, and increasing interest rates will only further add to the national debt. Paying debt interest gets us nothing in return; it doesn't generate economic growth.

The government's falling revenues will spur the government to issue more bond debt, which will eventually have to be paid back with interest.

According to Citi Group, the federal government will sell more than $5 trillion in new debt this year and next.

The cavernous hole we're in just keeps getting continually deeper.