March 14, 2011

Interest Costs May Exceed Expectations

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This week, Mercatus Center Senior Research Fellow Veronique de Rugy examines the projected cost of our debt.  When the Congressional Budget Office’s interest rate assumptions are modified to reflect historical interest rates and private sector forecasts, the costs of servicing our debt over next ten years balloons. For instance, if interest rates were modified to reflect the average rates in the 1980s, in 2021, our interest payments would nearly triple from CBO’s projection of $749 billion to $2.0 trillion.  Accumulated interest payments over this period would double from their current projected level of  $5.7 trillion dollars to $11.0 trillion dollars. Needless to say, the impact of these increased interest costs on the deficit would be huge.

The only way to address the increasing costs of our debt is to address the driving forces behind it – legislated explosions in Social Security, Medicare, and Medicaid spending.