Washington Needs a Fiscal Intervention

Long-term interest rates are approaching their highest yields in 20 years today, with the 10-year Treasury yield topping 5.2% and the 30-year bond topping 5.6%. Current yields are roughly 1 percentage point above where CBO projected they would be, which if sustained would add an additional $3.5 trillion to the debt over the next decade and boost deficits to a massive 8% of Gross Domestic Product (GDP) by 2036.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

As the bond market warning lights are blinking red, our leaders in Washington seem to be asleep at the wheel. Washington needs a fiscal intervention.

In just the last week, we’ve seen the 30-year Treasury rate reach a 24-year high, the 10-year hit a 19-year high, a concerning auction of 7-year bonds, and a dismal auction of 5-year bonds.  

While a number of causes can help explain the recent bond market weakness – high and rising debt is one of them – the consequence is clear and devastating: exploding interest payments. For households, that means higher out-of-pocket costs on everything from mortgages to car loans. For government, it could mean a debt spiral.

Already, the federal government spends over $1 trillion a year on interest – a record 3.2% of GDP. If interest rates remain a point above projections, annual interest costs will explode to $2.8 trillion – 5.9% of GDP – by the end of the decade. Higher interest begets more debt, and greater debt begets higher rates and higher interest. Eventually, the whole thing could come crashing down.

That’s why Washington needs a fiscal intervention now, before it’s too late. The President, the Treasury Secretary, and Congressional leadership need to understand the severity of this issue. There are no easy fixes, and we can’t just wish this problem away.

We need a real plan to get deficits down to 3% of GDP or at least a strategy to move in that direction. This could mean a fiscal commission, a trust fund rescue, or a trillion-dollar down payment.  

One of the best things we can do to bring inflation and interest spending under control is to show we’re serious about deficit reduction. There’s little time to lose. 

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.