What Happens to the National Debt When Interest Rates Surge?

The country has racked up a lot of debt (maybe you've heard). But, thankfully, interest rates are at all-time lows. That's saved you, the taxpayer, a bundle. Even though the national debt has tripled in the last 18 years, the amount the government spends annually on interest payments has declined from $232 billion in 1995 to $222 billion today. 

But what happens when interest rates rise?

What if they rise a lot? 

What will that do to budget deficits? 

The common answer is, with a $16 trillion national debt, rising interest rates will blow a hole in the budget deficit. This seems unshakably, arithmetically, true. And it probably is. I've written a warning about it several times. 

But there's another side to the story I've been thinking about, and it quiets the doom-and-gloom narrative down quickly.  

The nation's finances have been here before. Worse, even. In 1946, just after World War II, public debt stood at 109% of GDP, compared with 77% today. And short-term interest rates hovered around 0%, just as they do today. 

But from 1945 to 1980, interest rates surged from 0% to more than 11%. This is exactly what we fear happening today. 

What did this rate spike do to the country's interest-payment bill? From start to finish, basically nothing: 

Source: Office of Management And Budget, Federal Reserve, Bureau of Economic Analysis. 

Put this all together, because it's important: 

  • National debt was much higher in 1945 than it is now (in relation to the size of the economy). 
  • From 1945 to 1980, interest rates rose from 0% to 11%. 
  • This did virtually nothing to the real cost of paying interest on the national debt. 
How can this be? 
 
It's simple: We grew the economy faster than interest rates rose. 
 
The government ran a deficit in 28 of the 35 years between 1945 and 1980, and national debt rose from $235 billion to $711 billion. But during that period, GDP (the size of the economy) increased from $227 billion to $2.9 trillion. So while the national debt a little more than doubled, the size of the economy increased more than tenfold. 
 
Just as Bill Gates can afford a larger mortgage than I can, the richer a country becomes, the more debt it can handle. And the country became so rich from 1945 to 1980 that it could easily afford to more than double the national debt -- even with interest rates rising from 0% to 11%. 
 
That's not a forecast of what might happen over the next 35 years. A lot of stars aligned to make the post-WWII period an economic miracle: We had a baby boom, a manufacturing advantage as Japan and Europe were left in rubble, and the banking system kept its act together. Plus uncomfortably high inflation to boot, which pushed up GDP. 
 
But the important point is that rising interest aren't necessarily disastrous, even for a country with a massive debt. What matters most is that a country can grow its economy as fast, or hopefully a little faster, than its debt is piling up. With recent budget improvements, we're quite close to doing that already.  

Einstein once talked about making things as simple as possible, but no simpler. When we assume rising interest rates will devastate budget deficits, we're thinking about things in terms that are too simple. Rising interest rates are often a signal of stronger economic growth, which is the best medicine a country with a lot of debt can receive. 

For more on the national debt, check out my report, "Everything You Need to Know About the National Debt." It walks you through with step-by-step explanations about how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read it. 

 

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  • Report this Comment On September 16, 2013, at 1:45 PM, CruzanB wrote:

    Actually, the Fed Reserve Bank buys the US Bonds at a high interest rate and gives the profits back to it's owner - the US Government. So, the debt can net next to a 0 percent interest regardless of the face rate. Presently the fed makes billions and sends the profits to the US Treasury.

  • Report this Comment On September 16, 2013, at 1:51 PM, captaintodzilla wrote:

    "If there isn't justice for the people... let there be no peace for the government..." Doing the same thing over and over is insane. Fix America First. Prioritize , a good example is the best teacher. Recycle America. Create Accountability. Build a new Society before retiring the old decrepit one we have now. Build a new Government before retiring the old decrepit one we have now. Build a new Economy before retiring the old decrepit one we have now. Build a new Educational System before retiring the old decrepit one we have now. Build a new Judicial System before retiring the old decrepit one we have now. build new bridges and a new electrical grid ,prioritize people family and children ......turn things around......provide jobs completing the above task.....take the 1%'s jobs and money they have done it to the 99%'s working class. build a good foundation then rebuild. reinstate common sense. create accountability. and most of all treat our cancers greed , ignorance and self-entitlement. exile our prisoners and bring back labor camps so our prisoners make us money or at least don't cost us any. secure our borders . invest in our children and education more than politics. I would use morals and common sense good leadership and with gods help I would do it with the strength of the people of the USA. I would arrest thief's and thugs not granny's smoking weed.(meaning prioritize) there are so many simple solutions to our problems but so many master debaters. GREED IGNORANCE AND SELF-ENTITLEMENT ARE THE CANCERS KILLING OUR SOCIETY all the other #$%$ slewn by the media and politicians and churches are the things they use to keep your attention elsewhere like a magicians slight of hand while you focus on their shenanigans your children and your children's children are being exploited for the 1%'s benefit because our society works well for them and they can afford to keep it that way. if they want change FIX AMERICA FIRST. its simple to do for the rich. get a Honest President to declare ww3 so they cant get rid of him before his changes take hold. go to war against GREED , IGNORANCE, SELF-ENTITLEMENT, AND POLITICAL CORRECTNESS send our prisoners off to countries were at war with not our children. use our military as a border. change the charity margins so 70% goes to the charity and 30% go to the fundraisers (opposite of how it is now) invest in our children more than our prisoners. make all public office wages same as minimum wage. cap profit margins in America I don't like paying for the mistakes of others. gas prices went up after the bp oil spill because they wanted to recover their losses. our society runs the way it does because it is designed that way for the rich by the rich. their are many common sense simple ways to change things to make a better world to live in. legalize marijuana god made it man banned it, the rich cotton farmers were afraid of the hemp industry would make them poor. legalize prostitution maybe less children will get abducted. until we can prioritize correctly , have accountability , and worry about the American instead of the American dollar things will remain perverted. Anyone can find fault -- it's not a sign of anything other than moderate brain activity. It's much harder to offer creative criticism that actually improves the situation for everyone involved UNITED we stand divided we fall...there is only one race the HUMAN RACE all the divisions of political parties and skin color have demoralized this country into a sewage plant of lying stealing ignorant greedy self-entitled hypocritical idiots the government has had too much money power and time with too little results actions speak louder than words. vote Todd Higgins for president I would use common sense and high morals.

  • Report this Comment On September 16, 2013, at 1:56 PM, olitalia wrote:

    Its' also worth thinking about inflation. In the same way that your retirement nest egg is depleted by inflation, inflation is a valuable tool that can (and probably will) be used to deplete the national debt.

  • Report this Comment On September 16, 2013, at 1:57 PM, bluecollarecono wrote:

    cruzanB...are you saying the Fed funds the entire government?

  • Report this Comment On September 16, 2013, at 2:10 PM, XTMFCaptain wrote:

    Morgan,

    I really admire your writing, but I think you are glancing over some important facts regarding this article. Our government spending dropped considerably after 1945, and we had some budget surplusses during the Eisenhower years. So the Debt/GDP was shrinking, which is the main reason the interest payments to GDP stayed low. Today, the government isn't really reducing the spending. We have a lower deficit this year, but unfunded liabilities will only increase our debt over the coming years. Our interest payments to GDP will rise even if we stay at these low rates. If rates rise, we will face a huge problem.

    Using WWII debt numbers seems to diminish your argument because we were lowering government spending and debt back then.

  • Report this Comment On September 16, 2013, at 2:14 PM, TMFHousel wrote:

    <<We have a lower deficit this year, but unfunded liabilities will only increase our debt over the coming years>>

    As noted in the article, debt-to-GDP is on track to decline over the coming decade.

    <<Using WWII debt numbers seems to diminish your argument because we were lowering government spending and debt back then.>>

    Again, debt rose in all but 7 out of 35 years from 1945-1980.

    And spending as a % of GDP was 25% in 2009, 22.7% this year, and set for 21.8% next year. I'd call that a decline.

  • Report this Comment On September 16, 2013, at 2:17 PM, greyhound44 wrote:

    Since I have been a retired expat for 10 years and have most of my assets off shore - including my IRAs - have not paid FICA since 2003; NO property taxes in the US since 2004, and NO US income taxes since 2007, I suspect very little will involve me.

    Perhaps my daughter's house will appreciate.

    You fools voted for Insane Hussein!

  • Report this Comment On September 16, 2013, at 2:19 PM, wpaladin48 wrote:

    The key issue here, obviously, is how fast we can grow the economy. No disrespect intended, but anyone who thinks that we can grow our economy like we did post WWII is out of their ever loving mind. I question whether or not we can even grow our economy period, unless you're using some convoluted measuring method that counts government jobs as a part of GDP. We need private sector growth, and that simply is not going to happen if we continue along our current path.

  • Report this Comment On September 16, 2013, at 2:21 PM, TMFHousel wrote:

    <<No disrespect intended, but anyone who thinks that we can grow our economy like we did post WWII is out of their ever loving mind.>>

    I don't think anyone is making that forecast. Although as a rebuttal I'd challenge you to go back and read the news from 1945-1950. Economists were nearly certain the economy would slip back into the Great Depression and the U.S. was destined for decades of dismal economic growth. Booms are never foreseeable.

  • Report this Comment On September 16, 2013, at 2:26 PM, TMFHousel wrote:

    <<I question whether or not we can even grow our economy period, unless you're using some convoluted measuring method that counts government jobs as a part of GDP>>

    Another point: Government jobs have been falling consistently for the last five years:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

    (spike in 2010 represents Census hiring and firing)

  • Report this Comment On September 16, 2013, at 2:51 PM, XXF wrote:

    USGOVT as tracked by the Fed has fallen over the last five years, but only because it includes state and local positions, which for the purpose of the previous comment is a viable point, but in the scope of the National Debt perhaps a more salient point would be that the number of Federal Employees has increased from 2,768,886 in 2008 to 2,854,251 in 2011 (the most recent data available per http://www.census.gov//govs/apes/ ).

    In addition to the increase in the number employed federal payrolls grew even faster over that time period increasing from $15.5B monthly to $16.1B monthly (same source). That means that it is not the Federal government where cost savings could be seen from the decrease in public jobs, but it is the state and local positions over which people have more say which have been decreasing at an accelerated pace (to show a net decrease even in the face of Federal growth).

  • Report this Comment On September 16, 2013, at 2:57 PM, savant81 wrote:

    Why was debt to GDP so high (109%) in 1946? The reason for that was because we were fighting a world war. What are the drivers for our debt today? Entitlement programs. The deficits are structural and the funded portion is only a tiny piece of the real picture. Who owned the debt in 1946? American savers. Who owns the debt now? Japan, China etc and the Federal Reserve. The fed is printing $1 Trillion per year and their balance sheet is up to $3.7 Trillion with no end in sight. The fed is monetizing the debt. How many years can the Fed print $1 Trillion a year without it creating price inflation? Comparing America in 1946 to now is apples and oranges. Back then we were the #1 creditor nation with massive manufacturing capacity. Today we are the #1 debtor nation and have and our former manufacturing hub just declared bankruptcy. In 4 years, the debt will be over $20 Trillion and even if the average cost of debt only rises to 5%, that is $1 Trillion a year just to pay the minimum payment on the American credit card. Lets say the gov revenues increase from $2.5 Trillion to $3.0 Trillion by then, that is still 33% of our revenue just to service the debt which will keep growing. None of these payments will shrink the debt by a cent. All this ignores the unfunded liabilities. Clearly Morgan has not taken the time to model this.

  • Report this Comment On September 16, 2013, at 3:06 PM, TMFHousel wrote:

    XXF,

    <<USGOVT as tracked by the Fed has fallen over the last five years, but only because it includes state and local positions, which for the purpose of the previous comment is a viable point, but in the scope of the National Debt perhaps a more salient point would be that the number of Federal Employees has increased from 2,768,886 in 2008 to 2,854,251 in 2011>>

    There are currently 2.739 million federal employees, down from 2.768 million in September 2008.

    http://research.stlouisfed.org/fred2/data/CES9091000001.txt

  • Report this Comment On September 16, 2013, at 3:18 PM, TMFHousel wrote:

    Or as a better way to put it into context, there are currently 2.739 million federal employees, down from 2.8 million in 1970 and more than 3 million in the 1980s.

  • Report this Comment On September 16, 2013, at 3:57 PM, RustySlade wrote:

    Howdy Mr. House.

    Couple things from the comments above. . . .I don't think the amount of government jobs shrinking has anything to do with the National Debt (total). . . .It has more to do with total amount spent yearly.

    Next, after WWII, America became a manufacturing powerhouse which brought wealth to the middle class with jobs for the lower and middle class. .. Today, not so much of the GDP is driven by the manufacturing sector.. . . .Additionally, we became the new owners of technology after the WWII.

    ..."debt-to-GDP is on track to decline over the coming decade. "....... . .You have to ask yourself how much of this came from exports (taking in external wealth), V.S. deficit spending, QE's, and the financial sector inflating bubbles. . . .

    The only argument that works in your favor in relation to the article is really the very first comment by Cruzan. . . . With the FED the largest holder of US debt, practically all that interest goes back to the US treasury.. . But unless they start to unwind, or the government spends less, every year they set a new floor on the debt pyramid.

    The effect of deficit spending, and the FED unwinding of T-bill holdings, is that this money flows into circulation. . . . You mark my words, by the end of 2014 we will see 18 trillion in US debt and the government will still be spending 500 billion more per year than they take in. . . . They will be unable to generate the additional 800 billion per year in additional tax revenue needed to reduce that debt. . . .In other words, the debt will never come down and you can argue all you want about rate of increase but at the end of the day, it will never come down.. . Bank on that.

  • Report this Comment On September 16, 2013, at 4:04 PM, TMFHousel wrote:

    In regards to the Fed buying up all the Treasuries, note that the Fed's share of the Treasury market was lower in q1 than it was 10 years ago:

    http://g.foolcdn.com/editorial/images/36640/fed-market-share...

    While the Fed is buying up a lot of Treasuries, it sold a lot of Treasuries in 2008.

  • Report this Comment On September 16, 2013, at 4:49 PM, XXF wrote:

    Morgan, it is interesting that the St. Louis Fed link you gave in response to me above sites as it's source the link that I sited to you above as my source, but my source only goes through March 2011. I'm not sure where the more recent data comes from and is new to me, also new is the Fed series ID for Federal Employment, which I couldn't find earlier. Thanks for providing the link.

  • Report this Comment On September 16, 2013, at 6:25 PM, RMengineer wrote:

    That's all fine and good, but it's a recipe for disaster to write off worries over debt repayment on the _assumption_ that a growing economy could make it "affordable".

    The problem is people who live in _reality_ have to plan for future outcomes and eventualities whereas politicians plan for a future based on pie in the sky expectations of future eventualities.

    Sure, I could "afford" to go into debt to buy big expensive houses and expensive cars, etc., if I become a big movie star. But do I plan my debt based on that assumption or on the much more likely eventuality that I have more average/typical incomes?

    Sure, the repayment of the debt of approaching $17 trillion in the face of rising interest payments could be alleviated if our economy grew by ten-fold. But should we plan our government deficits on such pie in the sky expectations or should we plan out deficits on much more reasonable expectations about our future economic growth?

    That a ten fold growth in our GDP could alleviate debt repayment with rising interest rates should not be taken as license to pretend we don't have to worry about it.

    And what math is he using to claim that (soon to be) $17 trillion in federal debt is 77% of GDP? As far as I am aware our GDP is around $16 trillion (if even that). So by what math is $17 trillion 77% of %16 trillion? And as others point out, that does not include unfunded liabilities - which also counts just like debt mathematically as it is a future payment obligation that must come out of some future funding source, just like debt already on the books.

  • Report this Comment On September 16, 2013, at 6:58 PM, kyleleeh wrote:

    << And as others point out, that does not include unfunded liabilities - which also counts just like debt mathematically as it is a future payment obligation that must come out of some future funding source, just like debt already on the books.>>

    Counting unfunded liabilities as debt makes no sense. Nobody has any clue what future costs and future recipts are going to be, and all future obligations can be changed with the stroke of a pen. The supreme court has ruled on several occasions that the government does not have to pay people SS or medicare, even if they have paid into it their whole life.

  • Report this Comment On September 16, 2013, at 7:56 PM, savant81 wrote:

    @ kyleleeh

    You are wrong. The unfunded liabilities need to be taken into account because they are liabilities enacted by the law. SS and Medicare are entitlements and liabilities until they are not. We don't just assume that future benefits have no cost or repercussions because we could wipe them out with a "stroke of the pen". If we could just wipe away the liabilities with a stroke of the pen we would have done it. Seniors are not having it. They are not able to curtail the entitlements growth, let alone reform the programs. Who do you think will get wiped out with a stroke of the pen? Foreign bond holders or SS recipients? Obama even said at the last debt ceiling debate that we would default on our debt even though we have plenty of other budget items to cut but they refuse. Bond holders will get hit and that is when our society will understand that you can not consume more than you produce and grow wealthy. All answers to all problems cannot continue to be "print the difference" or there will be a dollar crisis.

  • Report this Comment On September 16, 2013, at 8:36 PM, kyleleeh wrote:

    << If we could just wipe away the liabilities with a stroke of the pen we would have done it.>>

    That never happens in a democracy untill the last minute, but it does happen. Europe has wiped out vast amounts of entitlement liabilities in the wake of it's finacial problems.

    << Who do you think will get wiped out with a stroke of the pen? Foreign bond holders or SS recipients?>>

    Both, most likely. That's what usually happens to a country when they get in to much debt.

    <<

    Bond holders will get hit and that is when our society will understand that you can not consume more than you produce and grow wealthy.>>

    And that consumption will probably be reversed with the stroke of a pen, by reducing entitlement payouts.

    << All answers to all problems cannot continue to be "print the difference" or there will be a dollar crisis.>>

    I don't know were you're getting that from my post. I never advocating printing money, I stated that future unfunded liabilities are not obligatory payments.

  • Report this Comment On September 16, 2013, at 8:41 PM, TMFHousel wrote:

    << If we could just wipe away the liabilities with a stroke of the pen we would have done it>>

    We did do it in the 1980s. More here:

    http://www.fool.com/investing/general/2012/11/29/how-to-scar...

  • Report this Comment On September 16, 2013, at 8:42 PM, TMFHousel wrote:

    On unfunded liabilities:

    "It's misleading to call the $87 trillion figure a liability because no one is liable for it. Unlike debt, Social Security and Medicare aren't contractual obligations. Heritage Foundation economist JD Foster explains: "Legally, they are not liabilities ... Congress can at any time reduce or alter them. In contrast, state pension plans are contractual labor arrangements that are liabilities because they are legally enforceable."

    There's good precedent for this "alter at any time" feature. Social Security was a mess 30 years ago. The program faced "insolvency in the near future," Senator Bob Dole warned in 1982. Estimates at the time showed Social Security would go bust by 1990. That never happened, because in 1983 President Reagan and Tip O'Neil shook hands on a deal to reduce benefits and raise taxes to keep the program intact. Life went on. Expect something similar to happen in the coming years. "

    http://www.fool.com/investing/general/2012/11/29/how-to-scar...

  • Report this Comment On September 16, 2013, at 11:25 PM, SkepikI wrote:

    <It's simple: We grew the economy faster than interest rates rose. > ummm NO. Morgan I lived most of that period and this is not what happened. The charts may make it look like that but from the 100 foot level nothing can be further from the truth. Among the many things economists don't appreciate or perceive is the quality of inertia in economics. There were just as many bumps and declines from 1955 ( my dawning but dim perception of events) to 1980 (most painfully aware of my 12% second mortgage and the nasty recession that grew from it). It is a pestilence on your readers to make them presume that periods of austerity and frugality did not figure into that vast sweep of time you so blithely label as simple.

    What was different for certain is that my grandparents, parents and my contemporaries were much more willing and enthusiastic about getting their own budgets in order and insisting their state, local and federal (feral?) servants get theirs in order too.

    And, I can tell you for a fact that when interest rates rose from 8 to 10 and then 12 and 15% we DID NOT grow the economy faster and overtake those petrifying interest rates with economic growth. The EXACT reverse happened. People flat out quit borrowing, expanding and for a time, living. The "rolling recession" of the 81-91 period was a thing to behold and a pox on all our houses until we emerged into daylight about oh, 92 or 93. (Depending on where in the country you hung your hat of course). The WORST recession since 29...until, well recent history...

    Another "big picture" it was ok eventually, and short term, well, you were dogmeat.

  • Report this Comment On September 17, 2013, at 12:24 AM, KGerbil1 wrote:

    Morgan,

    We will not grow even close to the rate we grew between 1945 and 1980.

    And those same baby boomers will drain SS and Medicare, etc.

    Nice story, but I think that you had it right the first time.

  • Report this Comment On September 17, 2013, at 11:07 AM, damilkman wrote:

    I believe a good case study is Europe today. EU has had essentially flat growth the last several years and the projections are for pretty much the same. When our age demographics are similiar to Japan and EU, I do not believe we can guarantee to grow ourselves out. There may be innovations that help, or perhaps not.

    I believe what is also overlooked and described by Skepipl that future leaders will attempt to inflate away the problem. It would be interesting to know what percentage of the WWII debt was inflated away by 1980 verse organically growing out of it. Uncomfortable inflation was mentioned in the original thread. But those who lived through it used slightly stronger adjectives.

  • Report this Comment On September 17, 2013, at 11:10 AM, TMFHousel wrote:

    <<When our age demographics are similiar to Japan and EU, I do not believe we can guarantee to grow ourselves out.>>

    Our age demographics, current or projected, are nowhere near either Japan or Europe.

    http://g.foolcdn.com/img/editorial/DemogJune12_0622.png

  • Report this Comment On September 17, 2013, at 6:22 PM, ynotc wrote:

    I feel so much better knowing that this not that big a deal. Thankfully this means we can spend more ... right?

  • Report this Comment On September 17, 2013, at 7:45 PM, gkirkmf wrote:

    How can our economy grow on $106 a barrel oil, which is projected to be $122 a barrel in one year..

    ( http://www.oil-price.net/ ).

  • Report this Comment On September 17, 2013, at 11:22 PM, wtatm wrote:

    Morgan,

    Good article... but I still think the debt is a ticking time bomb. Here's why:

    ~ From 1945 to 1980, debt increased from $235 B to $711 B... or 3.2% per year. Meanwhile, the GDP increased from $227 B to $2.9 T... or 7.6%.

    But what has happened since?

    ~ Our national debt, using $16.5 T as a figure for 2013, has increased 10.0% per year for the last 33 years! Meanwhile, based on the attached graph, it appears that the GDP has grown at a greater than 6% pace for only a couple years in the 1980s. Most years have seen growth at or below 4%... including the entire 21st century.

    http://www.tradingeconomics.com/united-states/gdp-growth-ann...

    Based on the concept of reversion to the mean, our federal budget is going to be in desperate shape when interest rates rise to a normal level... even if we can reduce deficit growth to GDP growth levels.

    I don't have a crystal ball, but looking at the last 30+ years, it does not look like a sustained 7.6% GDP growth rate... or anything close to it... can be counted on.

    Just my two cents.

    Jim

  • Report this Comment On September 18, 2013, at 12:19 AM, bbell46356 wrote:

    Morgan, Are you on crack?

  • Report this Comment On September 18, 2013, at 11:25 AM, TMFHousel wrote:

    ^ Strong rebuttal.

  • Report this Comment On September 18, 2013, at 11:38 AM, mdk0611 wrote:

    Morgan - Does the debt to GDP ratio you cite include unfunded entitlement obligations?

    .

  • Report this Comment On September 18, 2013, at 11:41 AM, sevenheart wrote:

    I remember interest rates exceeding 21% in 1980, part of the demise of Jimmy Carter's presidency. That's a bit more than 11%.

  • Report this Comment On September 18, 2013, at 11:52 AM, TMFHousel wrote:

    <<Does the debt to GDP ratio you cite include unfunded entitlement obligations?>>

    No. Because we have no idea what those will be. Same reason you don't include your grocery bill in the year 2059 when calculating your current net worth.

    More here:

    http://www.fool.com/investing/general/2012/11/29/how-to-scar...

  • Report this Comment On September 18, 2013, at 11:55 AM, TMFHousel wrote:

    Importantly, while today's figures don't included "unfunded liabilities," neither did the historical comparisons for previous years. We had massive unfunded liabilities in the 1970s and 1980s that predicted entitlements would be bankrupt by 1990.

    That didn't happen because, again, we have absolutely no idea what future obligations will be because Congress and (and does) change benefits and taxes at any time. You can't do that with debt. Debt has a payback date and a specific amount. Unfunded liabilities aren't debt.

  • Report this Comment On September 20, 2013, at 4:12 PM, trrll wrote:

    The point is that interest rates do not increase arbitrarily. Increased interest rates reflect increased demand for funds on the part of borrowers, which occurs because of economic recovery which creates opportunities for investment. Economic recovery increases GDP and also increases tax receipts, as well as producing inflation which reduces the value of existing debts.

  • Report this Comment On September 20, 2013, at 5:08 PM, 092326 wrote:

    After WWII the developed world had been virtually destroyed and the US economy was producing 50% of the Worlds GDP. Today we are at 20% and falling. Globalization and the emergence of the BRIC's has dramatically changed the economic landscape. Your comments are thoughtful and enlightening but I think that you omitted a key fact.

  • Report this Comment On September 20, 2013, at 5:16 PM, kyleleeh wrote:

    @trrll

    +1

    @092326

    So the world has become much richer then it was when we were the only player...and this makes debt unmanageable?

    Is 50% of 10 dollars more money then 20% of 100 dollars?

  • Report this Comment On September 20, 2013, at 5:58 PM, Quebecfool wrote:

    Hmmm ....

    Unfunded liabilities are an obligation of sorts, but not actually a debt ... therefore, no need to worry, because Congress can always raise taxes and/or reduce entitlements. PRECISELY! Now, do most Americans realize it is going to be NECESSARY to raise their taxes and/or reduce/eliminate their entitlements? Methinks not! Also, a little problem with raising tax rates is that it does not necessarily yield the desired increase in gross tax revenues, and a little problem with reducing entitlements is the extent to which anger over those reductions can result in the loss of political will to apply them (Greece, France, etc.).

  • Report this Comment On September 21, 2013, at 5:01 PM, Epitimather wrote:

    I am not expert in economy and finance.

    What often amazes me how one can compare figures and statistics of 50 or 100 years ago with figures supposedly/alledgedly representing basically the same elements or aspects of the supposedly/alledgedly same system or dynamism in it's current state.

    To me, national debt, e.g., is not just a question of amount.

    To make it maybe just too simple : It makes a difference, what the debts are made for and how much productive potential it represents and how trustworthy the creditors' claims are.

    Take a private household : Is the debt made just for fun and easy life, including gambling, or is it for education or equipment with productive potential? And this is just one of innumerable categories of aspects forming reality alltogether.

  • Report this Comment On September 22, 2013, at 11:40 PM, SkepikI wrote:

    ^ When France revalued the Franc and issued "new" Francs a lot of problems disappeared only to create new ones. Same when NZ changed to "new" Kiwis. ( I have .50 worthless old ones) Ditto when Mexico issued "new" pesos ( I still have some worthless old ones). German pre war Marks... take your pick. The only country that didnt do this (ignoring the CSA) was the good old USA. Maybe we will follow the lead of other idiots...

    In the short run, if you have half the population die by 40 and the other half live to 80, the average lifespan is 60, not much comfort to those who die young. Ditto with monetary losers and winners.

    In the long run, we are all dead. That means the 100 year average does not mean much to me individually, but I fear for my children and grandchildren. So I don't approve of Lunacy even if it will average out in 100 years......

    Solutions and thinking that average out in 100 or 200 years but stick the next generation ( not me!) with famine pestilence and poverty are not acceptable to me even if they are to economists.

  • Report this Comment On September 25, 2013, at 11:55 PM, NotJesseL wrote:

    We may not have a choice about pestilence... Antibiotic resistant strains of bacteria and viruses have the potential to entirely fix the demographic problem that social security and medicare present.

    I do not mean to be gloomy, my point is that the future is beyond any man's calculation.

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