Larry the Legend Loc: Not hiding in Milton

A contributor was wondering what impact a rise in interest rates would have on the US national debt...

"Imagine what the impact will be if rates returned to historic levels? E.H."

Good question, prompting the scary answer:

"Dear E.H. Not “if” rates returned to normal levels. It’s “when” they return to normal levels because that day will come."

Financial Armageddon, anyone?

https://nypost.com/2017/11/19/what-will-happen-to-us-debt-if-interest-rates-return-to-historic-levels/

bobebgtime Loc: Virginia

Your probably not a lot fun to hang out with.

Larry the Legend Loc: Not hiding in Milton

My many friends might disagree with that statement. Of course, they're not offended by statements of fact or predictions based on those facts. Anyway, what are you doing here if you're looking for 'fun'? You'd find more 'fun' elsewhere, like here, for instance:

http://funnyasduck.net/

Ferrous Loc: Pacific North Coast, CA

As long as the US has a National Debt of $20 Trillion, interests will be kept at historic lows... If the US ever again balances it's budget. then we will see better returns on our savings of the now less than 1%.

Some interesting facts:

As of July 31, 2017 the federal government’s total debt stands at $19.845 trillion
The nation’s debt is now bigger than its gross domestic product (GDP)
Net interest payments on the debt are estimated to total $276.2 billion this fiscal year (2017)...

According to the Treasury Department, the average interest rate on the public debt was 2.232%

Under current law, CBO projects that net interest costs will more than double over the next 10 years, soaring from $270 billion in 2017 to $712 billion in 2026 and totaling $4.8 trillion over the period.

Doom and Gloom, but not necessarily. We’ve been here before:

The Motley Fool

But there's another side to the story I've been thinking about, and it quiets the doom-and-gloom narrative down quickly.
The nation's finances have been here before. Worse, even. In 1946, just after World War II, public debt stood at 109% of GDP, compared with 77% today. And short-term interest rates hovered around 0%, just as they do today.
But from 1945 to 1980, interest rates surged from 0% to more than 11%. This is exactly what we fear happening today.
What did this rate spike do to the country's interest-payment bill? From start to finish, basically nothing:
• National debt was much higher in 1945 than it is now (in relation to the size of the economy).
• From 1945 to 1980, interest rates rose from 0% to 11%.
• This did virtually nothing to the real cost of paying interest on the national debt.
How can this be?

It's simple: We grew the economy faster than interest rates rose.

The government ran a deficit in 28 of the 35 years between 1945 and 1980, and national debt rose from $235 billion to $711 billion. But during that period, GDP (the size of the economy) increased from $227 billion to $2.9 trillion. So while the national debt a little more than doubled, the size of the economy increased more than tenfold.

Full article https://www.fool.com/investing/general/2013/09/16/what-happens-to-the-national-debt-when-interest-ra.aspx

And this is exactly what Trump is trying to do… Grow our Economy faster than Interests Rates rise… His plan is Jobs, jobs, jobs. Bring the Jobs, companies and money held over seas, while easing legislation that holds companies back. The only way out of this mess is to Fire up this Country's Economic Engine.

A debt-to-GDP ratio of 60% is quite often noted as a prudential limit for developed countries.
Our debt-to-GDP ratio is 106.1%
Top 10 Countries with Largest National Debt-to-GDP in 2017
Japan… 220.82%
Greece… 179%
Portugal… 138.08%
Italy… 137.81%
Bhutan… 118.6%
Cyprus… 115.47%
Belgium… 114.78%
United States… 106.1%
Spain… 105.76%
Singapore… 104.7%

bobebgtime Loc: Virginia

Hey Larry the Legend, just kidding

Larry the Legend Loc: Not hiding in Milton

It's hard to distinguish satire in print, unless it's expected or the indicators are clear. There's nothing wrong with being funny or kidding around, that happens a lot around here. When it does happen, it's generally either obvious or expected. Your comment was neither. Good. Now that's cleared up, did you click the 'funnyasduck' link?

bobebgtime Loc: Virginia

Thank God you have cleared it up.

Quakerwidow Loc: Chestertown, MD

You've skipped the part about our actually investing in infrastructure during that time: schools, highways, etc. Now we are not even keeping up with maintenance!

debeda

YES that's the part no one really wants to talk about. During the 1950s and 1960s infrastructure spending was high. Now... Too much is just let go.

Big Bass

A good post! Yes, rates must stay low. The fools who doubled this debt should have sought an alternative to mortgaging the future of the next several generations to come. The answer is to pay off the debt as quickly as can be done. Trump will be a great start - if the idiot left allow his policies to run. The best start: drain the swamp, and greatly streamline the government by acute and astute downsizing.

Ferrous Loc: Pacific North Coast, CA

The object is to get the Economy thriving, people working, and generated taxes filling the coffers back up. Then with a Balanced Budget, infrastructure projects can be paid for.. Not like Obama's Trillion Dollar Stimulus Program that was throwing money at unions and driving the debt up.

JFlorio Loc: Seminole Florida

Good point. Where do the funds come from when you are swimming n debt?

Big Bass

Cut expenses, and stimulate sources of revenue. Get unemployment down. The unemployed cost the system. If they are employed, no cost , plus tax revenue. A double positive.

JFlorio Loc: Seminole Florida

Not disagreeing, but interest rates staying historically low carries it's own dire consequences. One of the things we've done in this country to get out of a depression or recession is lower interest rates. When the next bubble bursts, which it will we cannot lower them anymore. So what will the Fed do?
Probably print a boat load more money like they did under Obama. Right now if you include the goods we actually need, like fuel and food, inflation is much higher than the clown car D.C. express would have you believe.

JFlorio Loc: Seminole Florida

I agree. Never happen.