The Impact of the National Debt

The Wall Street Journal published this quote from Lawrence B. Lindsey:

"Right now, thanks in large part to Federal Reserve policy, Uncle Sam can borrow at an average cost of just 2.5 percent. The average borrowing cost over the last three decades was 5.7 percent. Our debt is now $14 trillion and scheduled to grow to $25 trillion by the end of the decade. If interest rates normalize over that period the added interest costs in 2021 alone will be $800 billion—more than 20 times the mere $37 billion in budget cuts that tore up Congress in March. It would take virtually all of the cuts in the Ryan budget just to cover that added interest, much less to start bringing down the national debt. Unfortunately, the Fed is now in a fiscal box. A normalization of interest rates would break the Treasury. Hence, a normalization of rates really can't happen—we're stuck in a world in which the Fed must keep rates artificially low in order to prevent a budget disaster."

 How terrifying! Either normalizing monetary policy will swamp the federal budget with interest payments, or the country will look to the Fed to debase our currency sufficiently that we don't default on our debt.  Neither scenario allows for economic growth, but the growth we have experienced over the past three years is less than the average cost of the federal debt.  This underscores how important it is to address our federal budget deficit.