October 26, 2019
The Washington Post had a piece on newly released data on the federal budget deficit. The piece included the obligatory comments from the always wrong budget “experts” at the Committee for a Responsible Federal Budget. It also warned readers:
“U.S. debt is considered one of the safest investments in the world and interest rates remain low, which is why the government has been able to borrow money at cheap rates to finance the large annual deficits. But the costs are adding up. The government spent about $380 billion in interest payments on its debt last year, almost as much as the entire federal government contribution to Medicaid.”
“Almost as much as the entire federal government contribution to Medicaid!” Think about that. Try also thinking about the fact that interest payments were around 1.7 percent of GDP last year (before deducting money refunded from the Fed). That compares to a peak of 3.2 percent of GDP in 1991. Are you scared yet?
It’s also not quite right to claim that interest rates in the United States are especially low, at least not compared to other rich countries. The U.S. pays an interest rate on 10-year government bonds that is more than two full percentage points higher than the interest rate paid by Germany and the Netherlands. It’s even higher than the interest rate paid by Greece.
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