Can the U.S. Afford Sustained Higher Interest Rates? The Debt Math Is Scary.
My opinion: I don't think the U.S. can politically or economically tolerate modestly higher interest rates for very long.
The federal government is already running nearly $2 trillion in annual deficits, and those deficits are projected to grow even without higher rates.
Now consider what happens if borrowing costs increase 1.5–3 percentage points above expectations:
- Interest expenses rise: Trillions in additional debt-service costs accumulate as existing debt is refinanced.
- Economic growth will slow: this is obvious.
- Tax revenue could suffer: Due to slower economic growth than projected.
- Political pressure intensifies: Neither party will vote for spending cuts or tax increases needed to substantially reduce deficits.
Policymakers will ultimately tolerate more inflation and monetary printing rather than accept the economic and political consequences of prolonged high rates.
The Fed doesn't directly control long-term rates, but they can and likely will print $$ and buy bonds to try to keep rates low, which leads to more inflation.
What am I missing? Our plan is to keep buying fixer uppers and stay invested in assets and real estate, and assume the fed has no choice but to print and inflate if rates get much higher.
Is there an actual scenario where the USA CAN allow rates to go much higher for a long period of time?