Moreover, by 2025, federal revenues will be completely consumed by the combination of interest payments, Medicare, Medicaid, and Social Security. The Treasury will have to borrow money to finance all of its other obligations – including defense, homeland security, law enforcement, food and drug inspection and other vital operations. These projections are based on fairly moderate assumptions about future interest rates. The nation’s outlook will grow far more ominous if America’s creditors lose confidence in the federal government’s commitment to address its debt problem – which will increase interest rates. A loss of confidence in the markets could also send the value of the dollar plunging overseas, which could trigger runaway inflation and still higher interest rates.
Rising debt and rising interest costs could evolve into a “death spiral,” with the two feeding off one another in an ever-more vicious cycle. No one knows when such a catastrophe might occur, but no prudent nation would put itself at such risk.
Even without a crisis, rising debt will increase our reliance on foreign lenders, raising a host of other economic and national security issues. Already, more than half of U.S. federal debt is foreign-owned and China is the largest foreign holder.
