Thinktanks Alarmed by “Rapidly Growing Death Spiral” for National Debt
Michael A. Peterson is the CEO of the nonpartisan, nonprofit Peter G. Peterson Foundation, a think tank dedicated to addressing America’s long-term fiscal challenges. He’s alarmed at the rate at which the cost of servicing the U.S. national debt is increasing as 2022 comes to an end.
He describes the problem to the Boston Globe’s Jim Puzzanghera in an article published on Christmas Eve:
“If you’re borrowing more and more every year on autopilot to fund programs that we promised, which [you] lack the revenue to pay for, you then have a compounding problem where interest on the debt compounds and just adds to the burden,” said Michael A. Peterson, chief executive of the Peter G. Peterson Foundation, which promotes deficit reduction and has been sounding the alarm on the debt for years.
“Interest on the debt compounds and just adds to the burden and that puts you in this rapidly growing death spiral that we’re in,” he said.
The federal government paid $103 billion in interest on the debt in the first two months of this fiscal year, an 87 percent increase over what was paid in October and November of 2021, the Treasury Department reported this month. The main reason: the aggressive interest rate hikes this year by the Federal Reserve to fight decades-high inflation.
That extra cost to service the national debt is money that Uncle Sam doesn’t have. Rising rates take away money intended to pay for other things. Paying more interest expenses on the national debt could potentially force spending cuts.
I say “potentially” because there are alternative options. President Biden could demand tax hikes to pay for his excessive spending and the government’s higher cost of debt. But would do so at the expense of harming an economy heading to recession because of interest rate hikes. President Biden could choose to borrow even more to pay those inflating debt service costs, as he has to date. But that comes at the cost of worsening the national debt death spiral problem.
The truth is Uncle Sam could never afford anything more than a very small interest rate increase. Not with the Biden administration’s excessive spending unleashing the high inflation that forced the Fed into hiking interest rates so aggressively in the first place. Spending that President Biden refuses to cut because doing so means acknowledging his failed fiscal leadership.
The nonprofit Bipartisan Policy Center’s G. William Hoagland confirms the consequences of allowing a national debt death spiral to form is not the result of a sudden crisis. Here’s how he describes it in Jim Puzzanghera’s article:
“It’s the termites under the front porch,” G. William Hoagland, the senior vice president at the centrist Bipartisan Policy Center think tank, said of the growing national debt. “They’re working away at it, you don’t see them, but one day you step out on that porch and you go through it.”
“Termites” may be as good a metaphor for “politicians” as any. They’ve been gnawing away at the nation’s front porch for a long time.