Quote from Savings Beagle on December 23, 2021, 9:52 am

America, as well as many countries around the world, have amassed large amounts of debt over the past decade or so.  The primary reason has been central banks' actions to keep interest rates extremely low.  And it's these ultra-low interest rates that have allowed governments to grow debt levels to historically high amounts. You see, extremely low interest rates have allowed payments on the debt to be manageable.

Now, however, the U.S.'s central bank - the Federal Reserve - has announced plans to normalize monetary policy in the coming months and years.  Part of that normalization process involves increasing interest rates - which will increase the amount the U.S. government will pay on its outstanding debt.

Depending on how high interest rates are allowed to go, this could be a significant problem for the federal government's budget as well as the U.S. economy.

The report below by the Manhattan Institute, a free-market, conservative-leaning think tank, doesn't necessarily provide new information on this situation; rather it reinforces what many of us who follow this issue already know while adding in current policy initiatives that are being considered and how they may contribute to the problem.

Below is the report's Executive Summary.  The full, very detailed report, can be read at the link below.

How Higher Interest Rates Could Push Washington Toward a Federal Debt Crisis by Brian Riedl, Manhattan Institute

EXECUTIVE SUMMARY

Today’s trendy economic argument asserts that the current debt-to-GDP ratio of 100% has not harmed the economy, and therefore Congress can easily afford large new government expansions. But that argument has two fatal flaws. First, it fails to acknowledge that over the next few decades—even without new legislation—the debt is already projected to reach levels that even debt doves would likely consider unsustainable. Second, this argument assumes that interest rates will forever remain near today’s low levels, thus minimizing Washington’s cost of servicing this debt. However, economic trends rarely remain linear indefinitely, and interest-rate movements have rarely followed forecaster projections. Indeed, several realistic economic scenarios could easily push interest rates back up to 4%–5% within a few decades—which would coincide with a projected debt surge to greatly increase federal budget interest costs. Debt doves have no backup plan for this possibility. Policymakers should now enact reforms that scale back the escalating long-term debt projections in order to limit the federal government’s risk exposure to a fiscal crisis.

You can read the full report at this link.

We've written about the federal debt issue for years now, warning that ignoring the problem could pose significant consequences for not only the U.S. as a whole but for individual Americans and their financial health. 

Which is one of the primary reasons why Savings Beagle exists...to help individuals better their financial situation should financial conditions - both government and personal - change for the worse.

Our elected officials have been able to continue spending at unsustainable levels for years now...depending on how the economy and government policies progress over the next year or so, we may finally be heading toward an end-point.

What do you think?