With each new dollar we spend, the cost of borrowing money is increasing
While Democrats have made clear that money is no object in their $1.9 trillion stimulus passed by the House in the dead of night last Friday, they have made little mention of how increasing interest rates — as a result of the massive amount of federal spending over the last year — could result in an additional $1.3 trillion in additional borrowing costs for the federal government, that would also impact consumers paying for homes, cars, or education. This $1.9 trillion in new spending exacerbates the problem.
- Interest rates have been increasing recently, in part due to investors’ belief that the economy is recovering faster than expected, and because of expectations of future inflation due to the massive amount of federal borrowing in conjunction with spending investors see ahead. Even liberal Democratic economists like Larry Summers are sounding alarm bells about the impact of our burgeoning debt on interest rates and inflation.
- Current interest rates (based on 10 year Treasury Bond yields) are already larger than what the Congressional Budget Office forecasted . For example, they have increased almost a half a percent from .91% at the beginning of 2021 to 1.34% in the last month. CBO forecasted they would be at 1.1%.
- Based on that example, the cost of financing the total federal government debt, before we add another $1.9 trillion, would be an additional $1.3 trillion — assuming rates hold constant at 1.34% (last week) over the next 10 years. This also makes borrowing to pay for a home, a car, or an education, even more expensive.
- Democrats have rejected every Republican amendment that would have made the $1.9 trillion bill more targeted and less costly.
- If Democrats continue to push for an unnecessarily expensive stimulus, it ratchets up the amount of debt the American taxpayer will be on the hook to pay off.
The Details: Rising interest rates are a signal that the economy is improving and also a measure of inflation expectations (which are impacted by current and future spending). This is why Ways and Means Republicans recently wrote to the Biden Administration asking how many jobs the $1.9 trillion so-called “stimulus” would create. The Biden Administration has yet to answer, and the refusal to make the bill more targeted has yet to be justified.
About Interest Rates: Interest rates on a 10-year note are used as a signal on how well the economy will do in the future. It is also looked at as the price of borrowing money. So when the average consumer borrows to pay for student loans, finances a car, or takes out a mortgage to own a home, an increase in the interest rate means education, transportation, and home ownership is costlier.