Saturday, May 6, 2017

GAO: Biggest Fiscal Threat to U.S. Is Interest on Treasury Debt – Not Social Welfare Programs

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by Pam Martens and Russ Martens, Wall Street On Parade:

DollarSign-159x300.jpg On Wednesday, the General Accountability Office (GAO), the bipartisan congressional watchdog, released an in-depth report on the U.S. government’s challenging fiscal outlook. Despite its surprising revelations, the study received little to no coverage by major media outlets.

While most Americans have been led by political rhetoric to believe that government programs like Medicare and Medicaid are the biggest threats to the future U.S. fiscal picture, the GAO study found the following:

“While health care spending is a key programmatic and policy driver of the long-term outlook on the spending side of the budget, eventually, spending on net interest becomes the largest category of spending in both the 2016 Financial Report’s long-term fiscal projections and GAO’s simulations.”

The GAO cited a simulation that showed net interest payments on U.S. debt increasing “from $248 billion in fiscal year 2016 to $1.4 trillion in fiscal year 2045 in 2016 dollars.”

Another measurement of government debt is its percentage ratio to Gross Domestic Product – a means of evaluating how much of a drag it’s inflicting on the overall economy. The GAO study found the following:

“Debt held by the public rose as a share of gross domestic product (GDP), from 74 percent at the end of fiscal year 2015 to 77 percent at the end of fiscal year 2016. This compares to an average of 44 percent of GDP since 1946.”

The report further noted that both the Congressional Budget Office (CBO), and GAO’s own projections indicate that the federal government’s current fiscal path is unsustainable and policy changes must occur.

Key concerns raised by these findings include the fact that federal resources that could be deployed into key priorities like rebuilding the nation’s roads and bridges are being diverted to interest on debt.

Another concern expressed by the GAO is the upward rise in interest rates. While the GAO does not directly mention the Federal Reserve’s recent rate hikes, it does note the following:

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