With the big jump in the national debt in recent years, some observers were surprised that both President Obama and House Speaker Boehner have said that the debt is a problem not for now but it could be in the future. The President and Speaker are likely the two most important people in Washington. What do they see about the debt that others don’t? N.C. State University economist Mike Walden responds.
“What they’re looking at is the carrying cost of the debt. And although the debt has exploded in recent years, interest rates have plunged.
So in terms of the interest costs on paying that national debt, it really is not a big problem right now. In fact, the interest costs have barely budged over the last 10 years.
This is sort of like someone going out and buying a new car, and let’s say that today they buy a new car that’s twice as much as the one they bought 10 years ago, but their annual payments are lower or, in fact, not any higher because interest rates are so low.
So, that’s really what we have here. Now, of course the big issue is what happens if interest rates go up, and everyone recognizes that could be the big problem, and we could see an explosion, for example, in those interest costs — those carrying costs, if you will — of the national debt.
So, I think that’s what both the President and the Speaker were saying, that right now we don’t really have a problem because the interest costs are so low, but we do have probably a potential problem down the road once interest rates start to go up. That’s why we have to have some plan to deal with.”