Interest on the Debt vs. Collapsed Economy

“The US national debt is now over $11 trillion dollars. The interest on our national debt is now $340 billion. This is about at 3.04% rate of interest. In ten years the Obama administration admits that they will add $9 trillion to the national debt. That would take it to $20 trillion. Let’s say that by some miracle the interest on the national debt in 10 years will still be 3.09%. That would mean that the interest on the national debt would be $618 billion a year or over one billion a day. No nation can hold up in the face of those kinds of expenses. Either the dollar would collapse or interest rates would go through the roof.” – Richard Russell

Ouch. That’s if the interest rates stay low. If the interest rates went up by 1%, that would increase the interest payments by $113 billion today and $206 billion in the future. That $618 billion, by the way, would be a third of all tax receipts, so that increase of 1% would mean almost half our taxes would go toward just paying the interest on the debt.

But if we do not run up the debts, we risk an even worse nightmare scenario with crushing deflation – as prices collapse, so does consumer demand and with it, the engine that drives our economy.

But that engine is getting an awful lot of gas… in order to avoid a standstill, we may be driving the economy into a brick wall.

20 thoughts on “Interest on the Debt vs. Collapsed Economy

  1. Sarah Gibson

    With these two options of debt or collapsed economy. The U.S. will end with an idea in the middle. Obama can not afford to let the interest on debt heighten or let afford to let the economy collapse. Either way the U.S. government is screwed on how to bring the economy out of a recession.

    Is there a solution at all to this?

  2. Harrison Thomas

    Obama has already helped to nearly double the defecit. Just think how high this thing will go if the healthcare plan passes.

  3. Ali Aenehzodaee

    Either nobody is at fault or everybody owns up to a little bit of blame. And as far as healthcare go, well, that’s another moral and ethical issue.

    This all reminds me of the 5 psychological stages of a dying man except Russell seems to have skipped straight to stage five, acceptance. He seems very confident that our economy will crumble and fall. But then again, isn’t this all just a part of the cyclical characteristics of our economy? If we’ve hit the trough, the only place to go is up, right? Or is it going to be different this time? Like a post-apocalyptic economy. I mean, economists don’t exactly have a reputation for agreeing with each other, or being right.

    Now some economics questions,

    If this interest rate increases, will inflation go up to make up for it and keep the economy from falling? Or does the increase in the interest rate follow inflation and take up a bigger part of receipts? If interest rates remain the same, we risk heavy deflation? If so, which would be better, inflation or deflation?

  4. Shaun Jackson

    WEll i believe there is a way to keep inflation from going up and that will be by taxing us soo much money we will have onlty two choices, we either go to Canada or we move to Mexico. Ah Ail what if we are still in a downward trend? We know that most economists are inaccurate and that they could barely tell you where we are going. So why do we listen to them at all? Its almost like letting a blind man drive you to Barbados. #1. He is blind #2. There is an ocean between you and your destination. Why do we take that chance?

  5. Uchenna Anyiam

    I was just watching Obama’s speach live on CNN, and I think what he’s saying is pretty solid. He’s going to implement a plan that costs about $900,000,000 (Less than the debt we aqired from the Iraq war, and less than all the wasted money going into the current health care plan). BUT!!! None of it is going to add too the debt. How? He’s going to get rid of the wasted money going into the health care system (I forget the details, I just sat down for like 20 minutes to listen and then remembered I had homework to do). Someone tell me, is his plan solid? And please, only facts, don’t try to argue based on your “feelings.”

  6. Hugo Espiritu

    Well Shaun, most people listen to economists because they have a degree from an Ivy League school to back them up. Although it is very impressive to get such a degree there are still ‘dumb’ people who graduate from these schools. By dumb I mean that these people got the know-how they just don’t know how to use it.

    What goes on in the economy is at the mercy of millions of people, many of which think they know what they’re doing when they really don’t. Sure economists are able to recognize patterns in how the economy works and take action accordingly, but alot of what is done is still subject to random circumstances that might screw up what was trying to get done in the first place. Take into account that every economist has a different way of handling the present situation at hand and you have a big twisted mess of chaos.

  7. David Liou

    Though this will probably never happen, its seems that with no middle ground, the only option to save the economy is to create one world economy.

  8. Hugo Espiritu

    That sure would make the hassle of currency exchange obselete but it would make the economy very hard to handle. Also who would be in charge of the economy. Think about what would happen if the same situation we were in happened with a world currency. There would be no other currencies to hedge off of.

  9. Harrison Thomas

    Uchenna, wheres he getting his numbers from? Remember that government plans nearly always cost far more than initially believed. Especially when they’re on as grand of a scale as this. This will cause the debt to rise. Period.

    What I don’t understand is the timing of the whole thing. Our country is in the worst recession we’ve seen in years and apparently its the perfect time to introduce a system that will come at a huge cost to a government already trillions of dollars in debt.

  10. deanwebb Post author

    @ Shaun: Good luck elsewhere in the world. Every nation has its problems and running from ours means heading smack into theirs.

    @ Uchenna: “I’ll get rid of the waste!” Famous last words. Remind me to get you guys to start watching “Yes, Minister.”

    @ Hugo: Fancy degrees from fancy schools can be stumbled through easily enough. When getting a degree involves actually believing and spouting garbage ideas, we as a people need to stop being in awe of names and let ourselves be impressed by a good track record, regardless of where the guy’s been.

    @ David L.: That is so very wrong. One single currency would mean ruin for the world, as we’re not all in the same economic cycle. We’re very lucky in our own currency zone. The strain on the euro right now is unbelievable. It could still come apart in the next 20 years.

    @ Harrison: I have to agree with your skepticism.

  11. Hugo Espiritu

    I was just wondering if the National Debt Clock takes into account payment of the national debt. Or is there no payment being done on the debt?

  12. David Liou

    Even if there are payments to the debt, the spending that is done elsewhere far surpasses any improvements in the national debt.

    I was wondering when the interest on the national debt would pass tax revenue?

  13. Matt Wilson

    Does the United States have the most debt compared with other big nations like China and England. I mean if we reach 2O trillion dollars in debt, other countries would realize that we can’t pay back, so… if they don’t loan us more money, what happens then?

  14. Sagar Patel

    So the interest rate will just continue to go up, thus an increase in the national debt… is there a possible/reasonable way to lessen it?

  15. Hugo Espiritu

    Cut spending in unnecessary areas and make an attempt to pay it off, ideally with an inflated currency.

  16. David Liou

    Cutting spending isn’t going to happen anytime soon, with the health care stuff, wars in Iraq and Afghanistan and the pending war in Iran.

    Couldn’t we also lower our trade deficit to reduce debt?

  17. Hugo Espiritu

    I said cut spending in UNNECCESARY areas, whatever that may be. Having a trade surplus definitely would help out, I would think. Just as long as the US doesn’t continue to borrow money.

  18. deanwebb Post author

    Cutting spending in unnecessary areas… lol… like tea ladies?

    Everything the government spends money on is there because Congress voted for it.

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