This ain't no foolin' around.
The debt clock ticks every second, and worse, as we've been bleating for a couple years, is the interest.
Here's a bleat* from last year:
Betting the Farm: Debt Brings Risk of Losing it All
The risk for farmers is the same as that faced by the U.S. government.
It's not the debt per se, it is the cost of servicing it. Low interest rates seduce borrowers into taking on more debt than they should because the current interest cost is manageable. Should rates increase the proportion of cash flow that must go to debt service can crowd out any other use.
I touched on this problem during the run-up to the 2010 mid-term elections in "For My Republican/Conservative/Tea Party Friends: "Here is where all that Government Spending is Really Going". In a November post, "U.S. Government Debt Service to Surpass Military Outlays by 2016" we had a chart showing Federal interest payments rising from a bit over $200 billion/year to $800 billion, $600 bil. that could go toward productive purposes but instead would be used to keep the collection agency from calling.
Here's yesterday's Catherine Baum column at Bloomberg:
Four Numbers Add Up to an American Debt Disaster
Illustration by Jordan Awan
Consider the following numbers: 2.2, 62.8, 454, 5.9. Drawing a blank? Not to worry. They don’t mean much on their own.
Now consider them in context:
1) 2.2 percent is the average interest rate on the U.S. Treasury’s marketable and non-marketable debt (February data).
2) 62.8 months is the average maturity of the Treasury’s marketable debt (fourth quarter 2011).
3) $454 billion is the interest expense on publicly held debt in fiscal 2011, which ended Sept. 30.
4) $5.9 trillion is the amount of debt coming due in the next five years.
For the moment, Nos. 1 and 2 are helping No. 3 and creating a big problem for No. 4. Unless Treasury does something about No. 2, Nos. 1 and 3 will become liabilities while No. 4 has the potential to provoke a crisis.
In plain English, the Treasury’s reliance on short-term financing serves a dual purpose, neither of which is beneficial in the long run. First, it helps conceal the depth of the nation’s structural imbalances: the difference between what it spends and what it collects in taxes. Second, it puts the U.S. in the precarious position of having to roll over 71 percent of its privately held marketable debt in the next five years -- probably at higher interest rates.
First Among Equals
And that’s a problem. The U.S. is more dependent on short- term funding than many of Europe’s highly indebted countries, including Greece, Spain and Portugal, according to Lawrence Goodman, president of the Center for Financial Stability, a non- partisan New York think tank focusing on financial markets.
The U.S. may have had a lot more debt in relation to the size of its economy following World War II, but the structure was much more favorable, with 41 percent maturing in less than five years, 31 percent in five-to-10 years and 21 percent in 10 years or more, according to CFS data. Today, only 10 percent of the public debt matures outside of a decade.....MORESee also:
The Black Swan Isn't the Debt Ceiling, It is Holders of U.S. Treasuries Asking for Cash Rather Than Rolling the Paper
Grant's Interest Rate Observer vs. Paul Krugman on the U.S. Federal Debt
Geographic Areas to Short When the Debt Bomb Goes Off
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