What Are the Dangers of Too Much Debt?
The United States currently pays 3 percent interest on the government debt. Economics professor Antony Davies shows that this year the U.S. government owes $440 billion in interest alone. This is three times the annual operating expenses of the Iraq and Afghanistan wars.
Using data, Professor Davies shows that the situation is likely to get worse. Today the interest rate is the lowest it’s been since the 1960s. If the rate rises to 8 percent, which is what it was 20 years ago, interest payments on the debt will be larger than the annual cost of every war the United States has ever waged combined. The more money the government is spending on interest, the less money it has available to provide other services.
So what should be done? The government should take advantage of today’s low interest rate and pay off as much of the principle as possible now, before interest payments rise to unsustainable levels.