One for Box: Net interest payments on US debt/GDP.
Look at: http://www.cbo.gov/s...4521-LTBO2013.pdf. Currently, net interest payments on the federal debt are not 8% but only one-sixth that--1.3% of GDP:
The fantasy is the 8% number, and the belief that the debt is, right now, a crisis.
Moreover, 1.3% is the wrong number to look at. We want to adjust for inflation at 2%/year, and that gets us to 1.3% - 2% x 80% = -0.3% of GDP. We want our concept of budget balance to be not a stable real value, but a constant debt-to-GDP ratio. Making that adjustment tells us that right now the U.S. could run a primary deficit of 0.3% + 2.5% x 80% = 2.3% of GDP without seeing any increase in the debt-to-GDP ratio.
That's right: rather than the debt forcing us to cut spending on programs below the level of taxes (i.e., run a primary surplus) in order to keep the debt-to-GDP ratio from growing, right now the United States can have spending on programs exceed taxes by 2.3% of GDP (i.e., run a primary deficit) and still keep its debt-to-GDP ratio stable. In terms of real resources, right now the debt is not a burden. It does not reduce how much the U.S. can afford to spend on programs. It is a profit center. It is providing a net addition to federal resources to the tune of 2.3% of GDP.
That's how far the federal debt is today from being a burden on the economy.
Now I would bet that this will not last. When and if the average of nominal interest rates the U.S. owes on its debt rise by 290 more basis points--from their current value of 1.6%/year to 4.5%/year--the debt will no longer be a net source of resources, a profit center for the federal government. When and if interest rates rise still further so that the average nominal interest rate on Treasury debt is more than 4.5%/year, then the debt will become a cost center. It will then require the diversion of real resources in the form of a federal primary surplus in order to keep the debt-to-GDP ratio in balance.
[...]
US GDP roughly $16.6T in current dollars. 2.3% of that is $382B.
IOW, right now the US could spend $382B per year in more on stuff than it takes in in taxes (even before interest payments) before there would be any concern about the debt exploding due to increased interest payments.
Yes, it won't always be that way, but interest rates will only rise if the economy actually grows substantially faster than now, and that will make the debt easier to handle and the deficit smaller.
FWIW.
Cheers,
Scott.