The United States Senate Committee on the Budget released its findings on President Obama’s recently unveiled fiscal year 2014 244-page federal budget proposal. The key term to describe the latest budget, according to Republicans, is debt. Essentially, the GOP says it grows the government and not the economy.
Aside from the president suggesting capping individual retirement accounts, raising taxes on the wealthy, slightly reforming Social Security and instituting higher tax rates that affect the lower- and middle-class, what else does the budget contain? Extremely high interest payments on the national debt.
One important element of the president’s budget proposal that has largely been ignored by the mainstream media is that in one decade annual interest payments will be $763 billion. It does assume that interest rates remain the same, but if they increase then interest payments will exceed the $1 trillion mark.
This figure would be higher than defense spending in the year 2020. Spending on national defense is projected to be $601 billion, while the interest will be $609 billion. Just three short years later, the cost to service the national debt will be $763 billion and the defense budget will be $631 billion.
It isn’t just spending for the Pentagon but on entire discretionary spending. To fund government departments, agencies, personnel and programs would be roughly $647 billion in a decade. That is still $116 billion less than the interest payments.
At the present time, the U.S. government pays approximately $400 billion each year, or roughly seven percent, of all federal spending. Of course, this misallocates taxpayers’ money into spending on nothing other than paying off previous spending (think of the interest on a $200 item purchased in 2009 on your credit card).
In the end, the president’s budget proposal would equate to $8.2 trillion in new debt and that means the national debt in 2023 will be at a whopping $25.4 trillion. Furthermore, Obama wants $1.1 trillion new taxes and $964 billion in new spending.
“President Obama’s budget takes more from hardworking families to spend more in Washington, D.C. Instead of empowering people with more control over their lives, the President’s plan empowers bureaucracy,” the Senate Republicans said in a statement. “Instead of creating good-paying American jobs, the President’s plan destroys jobs, depresses wages, and diminishes opportunity.”
Most free market economists believe that interest rates will inevitably skyrocket. If the inflation rate is at eight percent, for instance, then the interest rates have to be above that percentage to contain inflation. If Federal Reserve Chairman Ben Bernanke only increases the interest rates by 25 basis points when inflation is higher then inflation can’t be held down.
“If one can borrow at fixed rates, I would certainly urge him to these days and in US dollars, because in my view interest rates will certainly be going higher over the next decade or two,” stated finance guru Jim Rogers in an interview with Fox Business Network in January. “Maybe there will be another drop first, but, no, no, no…these interest rates are absurd and will not last.”