In reference to the wonderful debt graph that Ezra Klein presented yesterday, Dean Baker presents an even better graph. This one is not on debt, because as Baker notes, the issue is not debt; it is interest on the debt. He notes sarcastically, “We don’t get back to the same devastating interest burdens we faced in the early 90s until 2019”:
Am I pulling a fast one here by switching from debt to interest payments? Not at all. Suppose we issue $4 trillion in 30-year bonds in 2012 at 2.75 percent interest (roughly the going yield). Suppose the economy recovers, as CBO predicts, and the interest rate is up around 6.0 percent in 4-5 years. The federal government would be able to buy back the $4 trillion in bonds it had issued for roughly $2 trillion, immediately eliminating $2 trillion of its debt. This will make those who fixate on the debt hysterically happy, but will not affect the government’s finances in the least. It will still face the same interest obligation.