Congress Must Stop Putting Off Solving The Debt Crisis

Back in the dreary world of fiscal policy, there’s more grim news about the federal debt. According to a Bloomberg analysis, annual debt service payments – the interest the government pays on all its debt – is estimated to reach $1 trillion.

That’s even worse than it sounds:

Calculated using US Treasury data, which discloses monthly outstanding debt balances and the average interest costs, last month’s annualized cost of debt marked a doubling over the past 19 months and was equivalent to 15.9% of the entire federal budget for fiscal year 2022.

“This high proportion of interest payments as a share of federal spending has precedent, as the portion before 2000 was over 14% in most years,” Bloomberg Intelligence analysts wrote… “The challenge for the government is tempering mandatory spending and trying to reduce the need to issue more debt. That’s the reason we see interest payments climbing even though we forecast lower Treasury yields.”

That “mandatory spending’ is largely made up of entitlements – the Social Security and Medicare payments that go to millions of older Americans. Who regularly vote. And don’t like any talk about reforms that might, somehow, affect size of their checks. Long term consequences be damned.

The real challenge for the the government is finding ways to keep the amount of debt and the hundreds of billions in debt service payments from galloping out of control. Until the political class, and the voters who elected them, are ready to address entitlements, there’s little to no chance that official Washington will be able to avoid a debt stampede.

All of which makes this warning about government debt from the Peterson Institute’s Olivier Blanchard more timely:

Turning to the United States, where the primary deficit is around 4 percent and (r – g) looks positive at this point, the challenge is even stronger. And, given the current budget process dysfunction, one must worry that the adjustment will not take place any time soon. Thus, the debt ratio is likely to increase for quite some time. We have to hope that it will not eventually explode.

The congressional budget process is broken. And it may take another hit as a possible government shutdown could occur in about two weeks. The best case scenario is the House and Senate manage to get their acts together and avoid a shutdown. The more likely case is the clock ticks nearly to zero before a slapdash deal is reached that merely delays the budget reckoning for a few more weeks or so.

That’s no way to run a government. And most certainly no way to convince markets that our politicians have the ability, or even the desire, to get our fiscal house in order.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.