Wasted money?

This year, the federal government will spend $300 billion on interest payments on the national debt. This is the equivalent of nearly 9 percent of all federal revenue collection and over $2,400 per household. The federal government spends more on interest than on transportation, education, and research and development combined. Despite historically low interest rates, this significant interest cost is the result of high levels of debt. This cost could be even worse if interest rates rise. Each one percent rise in the interest rate would increase FY 2021 interest spending by roughly $225 billion at today’s debt levels.

Committee For a Responsible Federal Budget
Committee For a Responsible Federal Budget

8 comments

  1. I find this post confusing. For one thing, what does “SS bonds” refer to? US Treasury bonds? For another, if readers cannot consider where interest payments go, hoe can we possibly judge whether the payments are “wasted”?

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    1. Free your mind to see the big picture. If what you want to spend in life must come from borrowing because you can’t or won’t increase your income and as a result you must pay an increasing amount of interest sooner or later you will be in trouble. In the case of government that trouble typically means inflation and in the extremes default. Last year I was in Argentina and talked with people who hide dollars in their house for fear of inflation. The SS trust was just an investor in Treasury bonds just like any other lender. Today that is no longer true, there is no excess revenue to invest and this year or next the trust will start redeeming bonds to pay benefits and government will have to borrow elsewhere to provide the cash for redeemed bonds. None of that makes spending money on interest a good thing especially when deficits and debt are at all time highs and going higher. Something has to give sooner or later. Certainly, if you borrowed at say 5% and earned 10% on the money borrowed that would be good, but when you have to borrow more or create less valuable money to pay the 5% not so good.

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      1. Yes, yes, I’ve heard many times about the perils of excessive borrowing. But you said the interest payments on the debt were “wasted’, didn’t you? That is the specific thing I was skeptical about.

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  2. The debt problem is so big now, it may be too late to fix. One CBO report showed that in 10 years we may be paying as much interest on the debt, as we spend on Defense. The political elite just do not care about future generations, that will have a lower standard of living, because of the interest payments, that will increase, while government spending on everything else, will have to be cut. Increased tax rates are coming, just to pay the interest, you can forget about anything else you may think the government should do.

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  3. I recently cashed out a few 1991 savings bonds that have been earning 4% interest. I assume saving bonds, treasury bonds, etc owned by Americans are counted as part of that “national debt” figure.
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    1. What’s the difference who it’s paid to? Those bonds are used by government to fund any number of things it needs revenue for. If the SS bonds weren’t bought by government, government would have to sell other bonds to sustain spending. Think how much better shape the SS trust would be in if only a small portion were invested in the stock market.

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