A big problem for a person running a large credit card balance is that the "miracle" of compound interest begins to work against them. Simply, the interest due on those balances gets added to the debt so that the debt grows even without new spending.
Our government is in that situation, and on a huge outstanding debt. As a result, in the same way that a credit card company can lose confidence in an overindebted cardholder and either cut them off from further credit altogether or raise their rates to exorbitant levels, the U.S. government as an issuer of new Treasury debt risks losing the confidence of the world's lenders. Should that happen, and we expect it will, the U.S. government will be required to pay a higher interest rate to attract the funding it needs.
The problem is that, as the old debt rolls over in a rising interest rate environment, interest expenses -- and by extension the debt itself -- rise. The budget projections above indicated a big narrowing of the deficit, but the projections, which come from the government, are based on extremely low interest rates, rising from today's low levels, but at no point in the decade ahead exceeding 5%.
The last time the world lost confidence in the U.S., in 1980, short-term rates spiked to 20%. The chart below shows the effect of interest rates rising by just 1% a year over the next decade, and that, with compounding, it would result in outstanding debt nearly doubling.
At that level, lenders to the U.S. government could start asking whether they will get their money back or not. After all, should government debt indeed reach the $20 trillion level, that would add up to about $200,000 per U.S. household, and it's hard to imagine the government is able to squeeze as much out of the public. At least not in dollars worth anything close to what they are worth today.
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