Democrats are poised to ram through an unprecedented $3.5 trillion dollar budget bill on top of $1.2 trillion in new "infrastructure" spending shoveling billions more at mass transit and "green venture capital funds." Add to this the massive COVID relief bills (from the Cares Act to the American Rescue Plan) totaling nearly $6 trillion and is there any wonder the United States now faces a debt crisis as never before?
Last September, the Congressional Budget Office predicted that the federal debt wouldn't hit $29 trillion until 2028. Just a year later, the national debt stands at over $28.7 trillion and is set to surpass $29 trillion within weeks. Our entire national income (GDP) is $22.72 trillion, but massive levels of federal spending since the Great Recession have driven just the publicly-held debt to 102% of GDP, something not seen since the end of World War II.
But here’s the worst part, the CBO debt estimates don’t include the new Democrat spending blowouts including the so-called infrastructure bill and the $3.5 trillion reconciliation package hiking 2022 federal spending to more than $6 trillion (up from $4.8 trillion in 2020).
To finance our debt, the U.S. Treasury has to sell bonds. Currently, the interest rate on ten-year Treasury bonds is just 1.3%. But from 1990 to 2020, the rate averaged 4.4%. Over the 60 years from 1960 to 2020, it averaged 6.0%. Yet with estimates showing our debt reaching $50 trillion by 2030, the CBO makes a "rosy scenario" assumption: that interest rates on the national debt won't reach 2% until 2027.
But a return to just the 4.4% interest rate—a three-percentage point increase—would add $1.2 trillion to the annual deficit and we’d find ourselves borrowing even more just to pay the interest on the debt that we already owe—a sure route to bankruptcy and a sovereign debt crisis not unlike Greece or Italy.
Interest rates on bonds will eventually have to outpace expected inflation for anyone to want to buy them. I won’t lend you money if I anticipate the total money that I get back is worth less than what I gave you.
The deficit projections will also be larger than Biden and Democrats think because they dramatically overestimate the revenue from raising taxes. But higher do cause people to work less. The Trump-era tax cuts saw slightly higher revenues from the year before.
The exploding debt isn’t just pain for distant generations who will be forced to pay much higher taxes. The safety net for seniors is being directly threatened by runaway spending. With the Senate tied at 50-50, the vote of either Democrat Sens. Amy Klobuchar or Tina Smith against raising the debt ceiling this fall could help stop this impending debt crisis.
They won’t—which is why they are a big part of the problem.
John R. Lott Jr. is the president of the Crime Prevention Research Center and former Rep. Jason Lewis was the 2020 Republican nominee for the US Senate in Minnesota.
This letter does not necessarily reflect the opinion of The Forum's editorial board nor Forum ownership.