Wednesday, April 23, 2014
It’s easier for a growing family to buy a larger home when the mortgage interest rate is low. Less money is needed from the monthly budget to pay that interest cost. More money is available to spend on groceries, clothes, heating oil, and gasoline.
Interest rates impact businesses in a similar way. When it’s cheaper to borrow money, it’s easier for a mill to buy another papermaking machine, or for an auto repair shop to open a second bay. More money is available to hire additional workers to operate those machines. Life is better because the company has grown, more families earn paychecks, and the resulting increased tax revenues can be used to repair roads and bridges and to educate our children.
During the past five years, the U.S. Treasury and independent Federal Reserve have used various “monetary strategies” to push down interest rates to historic lows. They have done so to help consumers and businesses borrow cheaply in order to grow the economy and create badly-needed jobs.
The historic low interest rates are helping the economy gradually turn around. Although the recovery is unusually slow and fragile, families with jobs are cautiously beginning to purchase new cars, homes, appliances, and so on. Businesses leaders still lack confidence about growing their companies and hiring new workers. Even so, it appears that the worst is behind us.
If the economy continues to strengthen, interest rates will naturally rise. That's because consumers and businesses will borrow more, and the increased demand for money will push rates higher – just like the increased demand for homes drive those prices higher.
Many economists and investment managers believe that interest rates have bottomed. If so, the growing $17 trillion mountain of public debt created by Washington’s reckless overspending will increasingly hurt American families. As interest rates rise, more and more federal taxes paid by workers and their employers will be needed to meet spiking interest payments on that monster $17 trillion debt.
This year, at historic low rates, Americans will pay $225 billion in interest on that frightening pile of debt – more than what we spend on Veterans’ Benefits.In five years, the non-partisan U.S. Congressional Budget Office projects a $517 billion interest payment, approximately what we spend on Medicare benefits today. In ten years, the $857 billion interest payment is estimated to exceed the amount we now spend on Social Security. If rates rise to the 1980 levels, the one-year interest payment could reach $2 trillion!
For many years, we’ve seen that career politicians cannot say “no” to spending someone else’s money. While focusing on their re-elections, they overspend hard-earned taxpayer dollars to satisfy the wants of special interest groups. As our elected officials pile up more debt and interest rates rise, the mandatory interest payments on the $17 trillion national debt will crowd out funding for vital government infrastructure such as highways, airports, and rails. Taxes will probably continue to increase to help pay for the haunting debt. All of this discourages business owners to invest in and grow their companies, and to hire more workers.
It would be heartbreaking for millions of Americans still looking for jobs if the surging national debt and smothering interest payments derail the fragile economic recovery. It’s our responsibility to be clear with public officials at all levels of government that unfettered spending and accumulating debt hurts American families.Tweet
Bruce Poliquin is the former Maine State Treasurer and a 2012 Republican primary candidate for the United States Senate. He has 35 years of experience owning and managing businesses. Bruce is a proud third-generation Franco-American Mainer and Harvard University graduate. Visit BrucePoliquin.net for his most recent commentary and analysis on media outlets throughout the State about the important issues facing Maine families and their jobs.