Yes, the interest on our debt is almost all I can think about today. My talented colleague Matt Mitchell made this animated version of one of my charts; it shows that, although entitlement spending is the driving force behind our fiscal problems, it is the cost on our debt that will end up crushing us if we don’t put some reforms in place soon.
This chart only tells part of the story. If interests go above the CBO-project interest rate of 5.4 percent beyond 2021 (see this post), the whole thing explodes. I mean, it explodes at these rates too, but at least you can still represent it on a chart. Based on CBO projections, by 2037 our debt as a percentage of GDP will be 200 percent. It may be fine for Japan to have such a high debt-to-GDP ratio, since most of their debt is held domestically, but it’s not fine for us. At this level — and sooner than later, I bet — our investors will want higher, much higher interest rates.