Budget question: How is interest on the federal debt paid?

[Atreus21]

Looking at NYT's graphic on Obama's 2013 budget:

http://www.nytimes.com/interactive/2012/02/13/us/politics/2013-budget-proposal-graphic.html

...one arrives at the fact that the interest on the public debt is about $472 billion.

Is that applied in anticipation of FY 2013's interest that has not yet accrued or does it pay FY 2012's already accrued interest?

 

[NikolaeVarius]

Borrow money to pay the interest on the borrowed money. Its a vicious cycle.

 

[Atreus21]

Borrow money to pay the interest on the borrowed money. Its a vicious cycle.

That's not an answer to my question. To what Fiscal Year's interest does the 2013 budget's interest payment apply?

 

[ShawnD1]

...one arrives at the fact that the interest on the public debt is about $472 billion.

Is that applied in anticipation of FY 2013's interest that has not yet accrued or does it pay FY 2012's already accrued interest?

The numbers are supposed to always look forward. When they say $10 to the military, they mean they are going to spend $10. It has not yet been spent. The interest in the budget is the total interest accumulated from now until the next fiscal year.

IIRC, the only sketchy thing about government accounting is that they only look at 1 year at a time instead of looking at total cost. For example, suppose they are going to spend 10B over 10 years. A private corporation would be required to report that as 10 billion spent this year. The government would only report that as 1 billion this year. In effect, it allows you to destroy the next administration just by signing a bunch of cheques that can only be cashed after you leave office. Guy A signs the biggest military expansion in history but it starts after he leaves office. Guy B is in office when the spending takes effect then OMG LOOK AT HIS MASSIVE SPENDING.

 

[HendrixFan]

Budget deficits are projected to include the interest paid throughout the year. As interest rates change throughout the year, the amount of interest changes significantly. Part of the reason the current deficits aren't that bad, relatively speaking, is that interest rates are near zero.

 

[Atreus21]

The numbers are supposed to always look forward. When they say $10 to the military, they mean they are going to spend $10. It has not yet been spent. The interest in the budget is the total interest accumulated from now until the next fiscal year.

IIRC, the only sketchy thing about government accounting is that they only look at 1 year at a time instead of looking at total cost. For example, suppose they are going to spend 10B over 10 years. A private corporation would be required to report that as 10 billion spent this year. The government would only report that as 1 billion this year. In effect, it allows you to destroy the next administration just by signing a bunch of cheques that can only be cashed after you leave office. Guy A signs the biggest military expansion in history but it starts after he leaves office. Guy B is in office when the spending takes effect then OMG LOOK AT HIS MASSIVE SPENDING.

Thanks very much. I wasn't looking to start an argument. This was strictly FMI.

'ppreciate it.

 

[Anarchist420]

Taxes pay the interest rate on the federal debt, but inflation reduces the real amount. The fed sets the federal funds rate which is the interest paid on the federal debt. If they set it to a level that's not insane (like 10% which they last had it at in 1989), then the interest on the federal debt would be about $1.5Tn. However, the market sets interest rates and the Fed simply distorts the market by favoring the government over the market and private borrowers.

The Fed is predominantly inflationary by nature since it's a perpetual bailout for the fractional reserve commercial banks.

 

[wirednuts]

money isnt real. thats why they do whatever they need to, to make it seem like its valuable. as soon as people realize its bullshit, it will all collapse, just like it almost did in 08

 

[UglyCasanova]

Taxes pay the interest rate on the federal debt, but inflation reduces the real amount. The fed sets the federal funds rate which is the interest paid on the federal debt. If they set it to a level that's not insane (like 10% which they last had it at in 1989), then the interest on the federal debt would be about $1.5Tn. However, the market sets interest rates and the Fed simply distorts the market by favoring the government over the market and private borrowers.

The Fed is predominantly inflationary by nature since it's a perpetual bailout for the fractional reserve commercial banks.

Umm, no. The federal funds rate is an interbank rate paid on loans loaned to each other from their Federal Reserve deposits. The Fed does not lend the money.

And you are confusing things the Federal Reserve does and things the Treasury does. Government debt is incurred by Congress and financed through the Treasury, not the Federal Reserve.

 

[dullard]

Budget deficits are projected to include the interest paid throughout the year. As interest rates change throughout the year, the amount of interest changes significantly. Part of the reason the current deficits aren't that bad, relatively speaking, is that interest rates are near zero.

People buy treasury notes that are fixed in duration (often 2 to 10 years). We know how many notes are out there, and what interest rate the notes are paying. Thus, it is pretty easy to calculate the interest that will be paid next year. Sure, there are fluctuations in new notes and fluctuations in how much is actually borrowed. But, just because the interest rate changes today doesn't mean there is a change to any of the 10 year notes that are already out there. There is a lot more stability due to the long note duration than you claimed.

 

[Nemesis 1]

Federal reserve is a private bank. How do those Bank owners get paid . IN GOLD we have none left in knox. Now that its all gone The Rothschilds and friends have what they wanted. Now its all going to fall apart . and it is. Rothschild got our Gold for their paper. How did this happen . Payoffs and degeneration of the school system .
http://www.youtube.com/watch?v=16K6m3Ua2nw&feature=related