Saturday, September 21, 2013

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.  (more)
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