By Brai Odion-Esene
WASHINGTON (MNI) – The former U.S. Comptroller General warned a
House subcommittee Thursday of the risks posed by the interest payments
by the government on its large amount of debt, and the potentially
crippling effect that could have on the federal budget in future.
The fastest growing expense in the federal budget is interest
costs, not healthcare costs, said David Walker, president of the
Peterson Foundation.
“Within 12 years — without a risk premium for interest rates —
the single largest line item in the federal government’s budget will be
interest on the federal debt,” he predicted.
If the government has to start paying a risk premium on its debt,
Walker projected that by 2040 the only thing the government could pay
“based on historical revenue levels,” is the interest on its debt.
By having excessive leverage, he warned, the U.S. is crowding out
its ability to invest in its future.
In addition the U.S. is placing at risk the possibility that it
passes a tipping point — where foreign investors may decide they want
to charge higher interest rates in order to offset any potential risk,
such a signifiant reduction in the value of the U.S. dollar.
“Ultimately we are not exempt from the fundamentals of finance,”
Walker said.
** Market News International Washington Bureau: 202-371-2121 **
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