There has been considerable speculation that higher interest rates are inevitable since the surprise election victory of Donald Trump as U.S. President. The problem is that few economists are contemplating the consequences on the enormous amount of debt the Federal government has wracked up since interest rates were last at a historically more normal five percent rate.
Consider that the Federal debt today is over $19.867 trillion. This makes it literally larger than the whole American economy, with a Debt to GDP ratio of 106 percent. In only the first 45 days of the 2017 fiscal year, another $294 billion has been added to America’s debt.
This amounts to a yearly debt increase of 13 percent. If they kept up this staggering borrowing, the total national debt would rise by $2.4 trillion this fiscal year alone. That would grow the total to over $21 trillion by September.
The debt is now rapidly outpacing U.S. economic growth. It is distressing news, despite Nobel winning Paul Krugman’s argument that debt is good. He argues that the American economy has managed to expand significantly despite having been saddled with debt since 1835.
It is not strictly true either. Besides the relatively unusual years during the U.S. Civil War and the Second World War, the levels of debt throughout the majority of American history were actually low. For example, the 1916 debt one hundred years ago equaled $3.6 billion, or seven percent of the GD