Maxing out the National Credit Card

This morning's Financial Times brings a warning from Nobel-Prize Winning Economist Michael Spence and McKinsey's Richard Dobbs that the "era of cheap capital" is drawing to a close.

Basically, that's a warning that interest rates are going to rise from their current super-low levels to something approaching normal, if not higher.

That should concern anyone who is thinking about buying a house, a car or starting a business in coming years.

But is should also concern anyone paying attention to our national debt. As the Congressional Budget Office made painfully clear earlier this week, the government's interest costs are set to "skyrocket" -- tripling this decade. But that's if we follow current law which has some weird things in it like, say, the complete elimination of tax cuts for almost everyone.

If we assume current policy is extended -- a better gauge of the likely budget path -- Interest costs will rise to almost six times 2011 levels.

Even under current law interest costs will top the annual federal deficit by 2020. In other words, our payments to reduce the debt will be less than the new debt we are taking on. Keep that up for long and anyone with a credit card knows how that ends -- bankruptcy.

Source: http://www.pbs.org/nbr/blog/2011/02/maxing_out_the_national_credit_card_deficits_debt_interest_costs_budget.html

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