Obama’s mega-borrowing is predicated on a rather thin margin of safety. We can service nearly $2 trillion in additional debt this year—on top the of the existing $11 trillion—only because interest rates are so low.
But as a veteran of the near usury of the 1970s and early 1980s, I see no reason why interest rates won’t shoot up to 10% once the economy recovers and the U.S. has to convince lenders to buy our paper in an inflationary spiral. In other words, we could fork out each year about $150-200 billion in interest costs on our annual red ink, in addition to paying annually another trillion dollars to service the existing debt. (We forget that many of us young people in the 1970s and 1980s simply never bought anything new due to high interest: my first new car was not purchased until 1989 when interest was only 7.2% on it; my parents bought a small condo in 1980 for the unbelievably low rate of 8.8%, due only to redevelopment incentives in a bad neighborhood of Fresno. Inflation will be back, even in this quite different age of globalized competition and low wages.)
When Obama talks of a trillion here for health care, a trillion there for cap-and-trade, it has a chilling effect. Does he include the cost of interest? Where will the money came from? Who will pay the interest? Has he ever experienced the wages of such borrowing in his own life? Did he cut-back and save for his college or law school tuition, with part-time jobs? Did he ever run a business and see how hard it was to be $200 ahead at day’s end?
Victor caught my attention with this one because he’s talking about national debt and possible rising interest rates in the future on outstanding loans (which can happen). I recall the late eighties right around Tillsonburg as the rates went double digit and million dollar farms were selling for a buck on the dollar (seriously). Obama and crowd are talking about national debt at this time as if there is no future tense. Something to have nightmares about.
My view — national debt should never run higher that what can be handled by taxpayers if borrowing rates were at 20%. Call it a safety factor.