Debt More Dire than Anyone Thinks

By Bill Wilson

Adapted from a letter to the U.S. Senate.
The nation is risking a fiscal calamity that threatens a catastrophic default on the $14.2 trillion national debt and the collapse of the dollar as the world’s reserve currency. If something is not done to bring the nation’s fiscal house into order, soon the debt will become too large to even refinance, let alone be repaid.

That is why Americans for Limited Government strongly endorses the Senate Republican Balanced Budget Amendment and urges all members of the Senate to fight for its immediate adoption. Soon the gross national debt will become larger than the entire economy, and by 2021, the Office of Management and Budget projects it will soar to over $25 trillion.
Interest payments alone threaten to destabilize the nation’s finances very soon. In 2010, the Treasury paid a total of $413 billion in interest on the debt, including $216 billion to the Social Security and Medicare trust funds. The total interest is a real obligation that requires real borrowing to meet, and cannot be readily discounted as revenue to the entitlement programs when it is in fact a liability to taxpayers.

The total interest owed on the debt will actually be over $1.2 trillion in 2021. And since the government never anticipates the debt being paid down, the number will easily grow to over $2.4 trillion by 2030. Moody’s has warned that when interest owed on the debt reaches 18 to 20 percent of revenue, the nation’s gold-plated Triple-A credit rating will be downgraded. The trouble is that the Office of Management and Budget projects total interest owed for 2011 to be $430.4 billion.  By that measure, total interest is already 19.79 percent of the projected $2.174 trillion of revenue. That means time has already run out.

Currently, the $14.2 trillion national debt already stands at 95.5 percent of the nation’s $14.8 trillion Gross Domestic Product (GDP). While it is unclear at what percentage of debt-to-GDP that the debt will become too large to refinance, the warning signs are already there that we cannot even meet our current obligations honestly.

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