Federal Government Faces Balloon in Debt paymentsOf course, the NYT has to put on the most favorable pro-administration spin on the story. The US had “decades of living beyond its means” and the excess spending this year is “is widely judged to have been a necessary response to the financial crisis and the deep recession.”
At $700 Billion a Year, Cost Will Top Budgets
for 2 Wars, Education and Energy
By Edmund L. Andrews
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The article has only indirect mention of where the borrowing is coming from. No mention that the US budget deficit was $1.4 trillion for 2009 — 205% higher (3x) the previous record of $459 billion. Nor does the NYT mention that the Obama administration plans to add another trillion to the deficit during FY 2010.
Nor is there mention of the trillion dollar increase in spending if either the House or Senate version of health care reform becomes law. As former CBO head Douglas Holtz-Eakin analyzed the bills Saturday:
First and foremost, neither bends the health-cost curve downward. The CBO found that the House bill fails to reduce the pace of health-care spending growth. An audit of the bill by Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, found that the pace of national health-care spending will increase by 2.1% over 10 years, or by about $750 billion. Senate Majority Leader Harry Reid's bill grows just as fast as the House version. In this way, the bills betray the basic promise of health-care reform: providing quality care at lower cost.So instead of spending cuts, the NYT series seems oriented at preparing well-to-do elites for punitive tax increases, rather than restoring spending to the % of GDP where it was 2 or 3 years ago (still not a small number). By one calculation, government spending hit 37.4% of GDP in FY2008 and 45.3% of GDP in FY2009. Excluding the peak of World War II (1943-1945), both are the highest numbers ever recorded in US history. And — unlike World War II — most of the spending is locked into the base budget, to continue indefinitely whether revenues increase or not.
Second, each bill sets up a new entitlement program that grows at 8% annually as far as the eye can see—faster than the economy will grow, faster than tax revenues will grow, and just as fast as the already-broken Medicare and Medicaid programs. They also create a second new entitlement program, a federally run, long-term-care insurance plan.
Finally, the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.