US Faces Payment Shock With Looming Debt

November 23, 2009

(ChattahBox)—A piece in Sunday’s New York Times, paints an alarming picture of the prospect of looming debt repayments that the United States would have to repay under rising interest rates. The U.S. is able to finance the country’s more than trillion-dollar-a-year borrowing with i.o.u.’s based on extremely low interest rates. But as the Federal Reserve loosens its tight grip on rates with the eventual improvement in the economy, the government will be facing a payment shock.

Combined with short term balloon payments and the staggering annual cost to service a trillion-dollar-a-year debt, the U.S. will need to find ways to refinance the bulk of its long-term debt:

“Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.”

As the government searches for solutions to managing its current debt loads, the borrowing continues:

“The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.”

There is no question that the Obama administration will soon face tough choices, as it manages the short-term need for additional spending to pump up the economy and create jobs, while at the same time find creative ways to deal with the growing federal deficit.


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4 Responses to “US Faces Payment Shock With Looming Debt”

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