Sunday, February 26, 2012

What if interest rates remain low?

It may be theoretically possible for the Fed to manipulate interest rates so they remain low forever. So I ran another scenario with interest rates never rising above 3%.  Everything else from the prior projection remains the same.  This extends the tipping point until 2040.

I don't show all the detail here, but the deficit still never drops below $1 trillion per year.  And the deficit first tops $2 trillion in 2028, after which things rapidly deteriorate.  So interest paid is not the cause of the crisis.  The crisis, to reiterate, is out-of-control Social Security, Medicare, and Medicaid costs.

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