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If Donald Trump Scares You, You Should See a Depression
Guest post by Lee Presser.
America’s fiscal year is October 1 to September 30. With two month left in FY16, the U.S. Treasury has already paid creditors $380,925,428,211.67 in interest costs. (That’s $381 Billion) https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
The average interest rate was just over 2%. https://www.treasurydirect.gov/govt/rates/pd/avg/2016/2016_07.htm
It is expected that the last two month’s of this fiscal year, interest costs will increase another $45 to $66 Billion. The total FY16 interest cost may be between $426 and $447 Billion.
In FY11, the Treasury paid creditors a record $454,393,280,417.03. (That’s $454 Billion)
With the debt at $19.4 Trillion (that’s 19,400 billions of dollars) what do you suppose the interest costs to the Treasury will be when the annual interest rate returns to normal? (Normal would be 4% to 6%)
In fiscal year 2015, the federal budget was $3.8 trillion. Of that amount only $1.11 Trillion was spent on what budgeters call discretionary items; food and agriculture, transportation, social security & unemployment & labor, science, energy & environment, international affairs, housing & community, veteran’s benefits, Medicare & health, education, government, and military.
The other $2.69 Trillion was spent on interest and what budgeters call mandatory items; spending on programs that are required by existing law. Medicare and Social Security are the two largest mandatory spending programs. They are about 40 percent of the federal budget. Agriculture, Defense, Education, and Veterans Affairs, also require mandatory spending.
As interest costs increase, either discretionary spending decreases or the annual deficit increases. Mandatory spending is unaffected unless Congress changes the law. Those mandatory checks always go out.
So, when interest goes from $426 Billion per year to $600 Billion per year, $174 Billion in programs that serve you and your neighbors must be cut. Or, Congress can increase the money supply to continue paying for the programs, which, as you would expect, will lower the purchasing power of your paycheck.
Of course, we could vote in new leadership and change the trajectory of government expenditures. But, for most of you, that’s way too scary.