This post looks at interest on the national debt by presidency. Its kind of a strange series… the President has some influence over this – if he cuts spending, for instance, all else equal, there will eventually be a decrease in the interest payments on the debt. (It can take a while.) On the other hand, movements in the Fed Funds Rate (controlled by the Federal Reserve) set an effective floor on the interest rate paid on treasury bonds… thus, the Fed probably has more influence over the interest on the debt than the President does. That said, the President can react to these changes by the Fed. A smart President will direct the Treasury to issue more short term debt if interest rates are high and expected to drop, or to issue more long term debt if interest rates are low and expected to drop. On the other hand, with real interest rates at their lowest in almost three decades, GW directed the Treasury to retire the 30 year bond, resurrecting it only after rates began to move up. (No doubt pointing out that GW did the opposite of what just about every home owner in America did (i.e., refinancing and locking in low rates in the past few years) constitutes another manifestation of my Bush Derangement Syndrome.)
Here’s a graph of interest payments on the National Debt as a percentage of the budget, and another with debt as a percent of GDP.
The huge increases under Reagan… that’s because of the huge increases in the debt. And I note… normally, this is where someone insists that whatever positive we observe under Clinton is due to the Republican Revolution, even when the trend for whatever series we’re looking at begins in 1993. So to help out those folks, who can spot the year that Newt took over on the graph? (A less snide comment – what happened in 1995?)
Here are summary tables to match…
So what do we learn? Well, GW has been incredibly lucky so far – the combination of the Fed’s keeping interest rates low and Clinton’s paying down the debt has helped to ensure interest payments on the debt have not had consequences as bad as they might otherwise have been. (Of course, his little stunt with the 30 year bond plus the now increasing debt means he won’t be passing along any of that luck to his successor. In fact, the upward trend on interest payments mean we, the American public, will get hosed sooner rather than later. When I write, as I have many times, that in my opinion this administration is qualitatively different than all the other ones that I can remember, this is an example of what I mean.)
BTW… notice the numbers… 8 cents on every dollar spent by the Federal government these days go to pay interest on the debt. And about a cent and three quarters of every dollar produced in this country goes to pay the national debt. These are non-trivial expenses bequeathed in large part by the massive run up in debt courtesy of St. Ronald the Reagan and George Bush the elder. (What, you didn’t think all that debt was gonna come at no cost, did you? Put another way… you didn’t think Reagan’s “tax cuts” were going to be free, did you? Now is when the bill gets paid.)
Data on the debt is for the total net debt, and it comes from Office of Management of Budget Table 3.2, as does data on total outlays. That table only contains data going back to 1962.
Data for GDP comes from Office of Management of Budget Table 1.2.
Next post in the series… Farm Subsidies. And if I can get the data, I hope to follow that with Welfare.