As America celebrates its 235th birthday this July, citizens are increasingly becoming aware of a new danger to the nation’s independence and sovereignty. It was identified as the number one threat to our national security by Chairman of the Joint Chiefs of Staff, Admiral Mike Mullen.
It is the skyrocketing $14.3 trillion national debt.
It is why in poll after poll a majority of Americans oppose raising the debt ceiling without significant spending cuts attached. They understand intuitively that once a nation’s debt gets so large that it couldn’t possibly be paid back if it had to be, that nation is effectively bankrupt.
That is the tipping point where default and restructuring of the debt becomes the only viable option, the only path to salvation. Sadly, the U.S. is rapidly approaching this position.
Could the debt ever be paid?
Currently, the U.S. is paying about 3 percent interest on the $14.3 trillion debt, or $430 billion of gross interest payments every year. If we had to repay everything over the next 30 years, principal and interest owed would amount to $908 billion out of revenue every year. That’s 41.7 percent of this year’s $2.174 trillion projected tax collections.
Is that affordable? Would repayment even be possible today? Perhaps just barely. The benchmark total debt service ratio for mortgage lenders is 40 percent. Anything above that, and a prospective borrower would not qualify for a loan. So even today, Uncle Sam would not qualify for a home mortgage.
What is clear is that by this analysis, over time repayment becomes increasingly improbable, if not impossible. By the government’s own numbers, the debt service ratio will continue to rise this decade. Even under the rosiest scenario, America will be broke within the next 10 years.
By 2021, when the debt rises to $26.346 trillion according to the Office of Management and Budget (OMB), that office projects interest rates will have returned to their historical norm of 5 percent. Then annual gross interest payments will be $1.317 trillion. If we attempted to begin repayment then, principal and interest owed would amount to $2.195 trillion, or 45.5 percent of the projected $4.820 trillion in tax receipts projected for that year.
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