November 27, 2010

THE FISCAL TRAP: “Most of the baseline assumptions about the size of our debt assume that today’s exceedingly low interest rates continue. If they don’t—even if rates just return to the average of the past 20 years—the picture looks far more grim. . . . As Lindsey points out, if the current very low rate continues, and our fiscal policy basically follows the track laid out by the president’s last budget, then the interest on the debt 10 years from now will be a little over $350 billion. If the rate goes back to the 20-year average, however, interest on the debt 10 years from now will be more like $1.15 trillion. Again, no small difference. Indeed, it is enough to make some prominent elements of our deficit debate seem a little ridiculous.”

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