Friday, April 13, 2012

Washington's $5 trillion interest bill

Interest rates on U.S. bonds may be ridiculously low, but that doesn't mean the country's future interest payments on the national debt will be.

Uncle Sam will shell out more than $5 trillion in interest payments over the next decade, according to the latest projections from the Congressional Budget Office.

That's more than half of the projected $11 trillion increase in debt held by the public during that period. Those figures assume that a host of expensive policies such as the Bush-era tax cuts are extended.

Over the decade, more than 14% of all revenue the government is projected to collect will be sucked up by interest payments.

That's a lot of money that can't be used on the country's other priorities.

Indeed, between 2013 and 2022, estimated interest costs will be:

•higher than Medicaid spending;
•equal to half of Social Security spending;
•close to what is spent on all of defense.
And here's the thing -- the estimated interest costs assume a fairly steady and moderate increase in rates over the decade.

The CBO assumes that the yield on the 10-year Treasury will rise from an estimated 2.3% this year to 5% by the end of the decade; and the yield on the 3-month T-bill will increase from 0.1% to 3.8% during the same time.

Source: Jeanne Sahadi NEW YORK (CNNMoney)

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