Balloon Payments

Among the many reasons for the recent financial collapse was debt—excessive, crushing debt. Think of it at a personal level, you’re offered a mortgage that’s twice a large as you can afford, but you’re also offered an initial “teaser” interest rate that makes your monthly payments affordable. In the small print there's a note that says interest rates will balloon in the future, but heck, that’s the future, so no worries.

It’s ironic that the same thing is happening with the federal government, but our super smart President and his large congressional majority seem unable or unwilling to see it. Right now, interest rates are at historic lows, so our debt payments are very high, but manageable. But those lows cannot and will not last too much longer, and then interest payments on the national debt will balloon. The New York Times reports:

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.

Most responsible adults, if faced with crushing debt, would try hard, very hard, to cut expenses. We’d also try hard not to add to our already overburdened debt load. That doesn’t require a Harvard degree, it's simply common sense, a.k.a. responsible fiscal behavior.

But President Obama and the congressional majority feel compelled to force a major new entitlement on an already overburdened national balance sheet. All of the dishonest budget manipulation available to the Congress can’t hide the fact that current health care legislation will add trillions of dollars in debt over the next few decades and set the stage for enormous, possibly intractable problems later.

But the President and the Congress simply don’t care. Like spoiled children who want what they want regardless of the costs or consequences, they embrace their delusional view of future costs. After all, bankrupting the country is a small price to pay for their warped version of “social justice.”