• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Economy When Federal Interest Payments Come to Exceed the Military Budget: Time to Stop Defending the Rest of the World
Economy

When Federal Interest Payments Come to Exceed the Military Budget: Time to Stop Defending the Rest of the World

by January 5, 2023
by January 5, 2023 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

A new year dawns bright, with the US hurtling over the fiscal cliff. The lame duck Congress voted for a pork-packed $1.7 trillion budget bill. As the saying goes, it’s only money!

At a time of enormous domestic need, Republican Senate leader Mitch McConnell pushed an extra $45 billion for Ukraine, declaring that Washington’s “number one priority” was supporting that nation. Kentuckians might wonder if their Senator had moved to Odesa, Kharkiv, or Lviv over the holidays.

Alas, this appropriation was small change compared to the overall “defense” (in fact, mostly for offensive operations) budget. Congress hiked military outlays to record levels, topping off the already-bloated Biden spending program at $858 billion. American taxpayers remain stuck subsidizing prosperous, populous Europeans, superfluous Middle Eastern monarchs, and cheap-riding Asian defense dependents.

Unwilling to raise taxes as it also shovels ever-more cash into social programs old and new, Congress simply borrows additional money as if loans need not be repaid. The publicly held national debt hit 100 percent of GDP and is heading toward the record of 106 percent set in 1946, at the conclusion of the worst war in human history. Within a decade the US faces trillion-dollar deficits for as far as government analysts can budget. By mid-century the Congressional Budget Office expects the debt/GDP ratio to run around 185 percent. And that assumes policymakers don’t do anything stupid, like approve massive new spending programs without paying for them. Which, unfortunately, is as certain as the rising of the sun.

Endless borrowing isn’t cheap. Over the last decade interest payments as a share of GDP jumped about a quarter. And the era of (almost) free money is over as the Federal Reserve pushes up rates to wring inflation out of the economy. The budget agency’s estimates are daunting: “Combined with rising interest rates, large and sustained primary deficits cause net interest outlays measured as a percentage of GDP to more than quadruple over the period: They rise from 1.6 percent of GDP in 2022 to 7.2 percent in 2052.”

Last year the Washington Post’s Allan Sloan considered the increased cost for just 2022: “Total interest payments on the government’s debt could come in at nearly $580 billion this fiscal year, up from $399 billion in recently-completed fiscal 2022.” It will get much worse in the future. The Townsend Group’s Red Jahncke warned, accounting for the enormous amount of federal debt currently held by the Fed: “Total federal gross interest cost over the 12 months ending on May 31 [2022] was $666 billion. If we include the impending extra interest on Treasury bills and the maturing notes, that figure rises to $863 billion. This is a staggering cost. National military spending was $746 billion over the past 12 months; Medicare spending was $700 billion.”

The Peter G. Peterson Foundation figures that interest payments will run $8.1 trillion over the coming decade. That’s an average of $810 billion a year. By 2032 interest payments will be about $1.2 trillion a year, above expected military outlays. By midcentury, interest costs will be greater than Social Security and Medicare and will account for 40 percent of total revenue. Of course, interest payments come off the top, a legal obligation that cannot be changed by Congress (absent repudiating federal obligations).

A more rapid increase in interest costs also would inflate future debt levels. Last year CBO offered a higher interest scenario, boosting “the average interest rate on federal debt above the baseline rate by a differential that starts at 5 basis points in 2022 and increases by 5 basis points each year (before macroeconomic effects, which are described below, are accounted for). Under that path, federal debt held by the public equals 235 percent of GDP in 2052 rather than the 185 percent of GDP it equals in the extended baseline projections.”

Unfortunately, interest rates are far more likely to be higher than lower. Irrespective of the Fed’s monetary policies, congressional fiscal behavior almost certainly will remain wildly expansionary, given the lack of commitment to budget responsibility by either major party. Despite occasional rhetorical flourishes, even most GOP legislators have abandoned any pretense of opposing the ongoing fiscal tsunami.

Borrowing will continue to look like the easy way to afford increased outlays even though the cost of debt also will be increasing. Putting the expense onto future actors will remain attractive to current legislators, until the entire system collapses. Moreover, investors likely will expect inflation to remain high given projected deficit increases even before including higher interest payments. And who will purchase the unending supply of federal debt? Warned Jahncke, “It will be challenging and costly to find buyers to replace the Fed.”

Finally, the more the national debt climbs, with increasing doubt as to Washington’s ability to handle the growing burden, the greater the likelihood of a full-blown fiscal crisis. CBO warned:

The likelihood of a fiscal crisis increases as federal debt continues to rise, because mounting debt could erode investors’ confidence in the US government’s fiscal position. Such an erosion of confidence would undermine the value of Treasury securities and drive up interest rates on federal debt as investors demanded higher yields to purchase those securities. Concerns about the government’s fiscal position could lead to a sudden and potentially spiraling increase in people’s expectations for inflation, a large drop in the value of the dollar, or a loss of confidence in the government’s ability or commitment to repay its debt in full, all of which would make a fiscal crisis more likely.

If the value of federal securities held by banks then cratered, the US might face a financial crisis as well. Think 2008, only this time without any fiscal room to bail out failed institutions. Back then, the national debt owned by the public ran “only” $5.8 trillion, compared to $24.6 trillion today, a more than fourfold increase.

Washington’s War Lobby nevertheless insists that nothing the US spends is ever enough. Last year, even before the Ukraine invasion, wrote Joni Ernst and James Carafano, US Senator and Heritage Foundation vice president, respectively: “A frozen defense budget will not satisfy the needs for the military to counter threats ranging from an emboldened China, a revanchist Russia, and perpetual bad actors such as North Korea and Iran.” Real increases of three to five percent a year, argued the authors, were necessary “to project power and uphold our alliance commitments.”

When confronted with the coming red ink tsunami, members of the War Lobby blame entitlements for bloating the budget. There is no problem, they suggest, that could not be solved by slashing Medicare, Social Security, Medicaid, and assorted other “mandatory” social programs. After all, the bulk of the budget is accounted for by those three plus interest and the military. (Domestic discretionary outlays, currently the most convenient budget target, make up only 16 percent of total federal spending.)

If, however, it were easy to slow (let alone decimate) social programs with an aging population and ever-rising health care costs, it would have been done already. Endless numbers of fiscal conservatives, from Ronald Reagan to Paul Ryan, tried to do so. Alas, in coming years even Ernst might find it hard to convince residents of assisted living centers that their benefits should be cut to allow the Europeans to continue expanding their welfare states. Then there are the kids: activists on the left already are arguing that rising interest payments are overshadowing popular causes such as caring for children.

Where else but the military will Congress look if it hopes to avoid fiscal and financial disaster in the future?

The world is a dangerous, messy place, but not particularly for America. The US is dominant at home, flanked by enormous bodies of water and bordered south and north by weak, peaceful neighbors. Washington’s overseas intervention is almost entirely discretionary, utterly disconnected from anything close to a vital interest. Instead, America has created a defense dole for the world, by which industrialized states uniformly shirk responsibility for protecting themselves and their regions.

The US economy no longer can sustain a policy of endless war. Rising interest rates highlight the dismal state of Uncle Sam’s finances. Fiscal reality, as well as good sense, tells the US to focus on its own security.

You Might Also Like
  • Reporter’s Notebook: Eyewitness to Taiwan’s annual military drills amid growing China threat
  • Reporter’s Notebook: NATO goes back to the Cold War to fend off Russia
  • Democrats slam Biden for bypassing Congress to strike Yemen
  • How Individuals Enable Tyranny
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Tech layoffs continue but don’t let that fool you, employment remains strong
next post
Semtech’s LoRa® Devices and the LoRaWAN® Standard Optimize Smart Metering with Sindcon

You may also like

Morning Glory: Biden and his disastrous national security choices

February 22, 2024

Chemical abortion harms women. Supreme Court can’t ignore them

December 23, 2023

Hunter Biden sought State Department assistance for foreign company while...

August 14, 2024

Assassination attempt on Trump at Pennsylvania rally leaves 2 hurt,...

July 14, 2024

Fox News Power Rankings: Three governor’s races to watch on...

August 14, 2024

Trump charged with additional counts in special counsel’s classified records...

July 28, 2023

North Dakota Gov. Doug Burgum suspends Republican presidential campaign

December 5, 2023

Biden administration proposes expanding access to no-cost birth control under...

January 31, 2023

Nikki Haley clarifies Civil War ‘was about slavery,’ and individual...

December 29, 2023

White House reporter sues Karine Jean-Pierre after losing press pass

August 14, 2023

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout, pulls outlook

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025
    • The Unpredictable Stock Market: How to Make Sense of It

      May 8, 2025
    • AMD CEO calls China a ‘large opportunity’ and warns against strict U.S. chip controls

      May 7, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,633 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,339 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,321 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,303 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,186 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout,...

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    US stops sharing nuke data with...

    March 29, 2023

    USDCHF and USDJPY: USDJPY is retesting...

    October 21, 2024

    MTG responds to House Dem planning...

    May 20, 2024
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here