The national debt is unimaginably large and it is growing larger. The costs of caring for an aging population are driving unsustainable budget deficits far into the future. These five charts explain the problem.
1As a share of the economy, the federal debt is now larger than at any time since the end of WWII.
2 The Congressional Budget Office projects that government spending will substantially exceed government revenue over the next decade. This will result in large deficits and mounting government debt.
3 The rising costs of popular programs such as Social Security and Medicare are the primary reason the debt is growing. However, interest payments are also a significant factor. Spending on everything else is falling as a share of the economy. So, cuts in spending in other areas, including defense, are unlikely to make a significant difference.
4 Over the next decade, the cost of interest payments on the debt will exceed the cost of national defense. An unexpected rise in interest rates would make things far, far worse.
5 The cost of paying the interest on the debt is the fastest growing part of the Federal budget. As interest payments grow, there will be less money to spend on other priorities that benefit the general population. Think of it as a tax on our failure to address the debt problem.
The Bottom Line
We have yet to feel the effects of unsustainable government spending. This is because the demand for U.S. dollars around the world has kept interest rates relatively low. Someday the world might not need so many dollars.
When that day comes, investors will demand higher interest rates in exchange for loaning money to the U.S. government. This means the cost of interest payments will skyrocket. The government will have no choice but to impose steep tax increases and deep spending cuts to make up the gap. Also, interest rates on everything from mortgages to auto loans will likely rise as well. As a result, consumers will be less able to buy things and the economy will slow dramatically. However, by then it will be too late.