Can the Government Even Pay the Rising Interest Expense on its Gigantic Debt as the Fed Pushes up Rates? Yes. Here’s Why | Wolf Street

Higher interest rates enforce discipline. Eventually, higher interest rates combined with ballooning debt levels will push interest expense up to a point where it’s taking more and more of the growing budget, and Congress will have some debates about it, and after some grandstanding and tongue-wagging and taking in the maximum amount of lobbying money, there might even be a compromise on spending and taxes because the only discipline in a capitalist system is the cost of capital.

And if the cost of capital is zero, or is below zero in real terms, and for long enough, then there is no discipline, and the drunken party just keeps going on, and the debt keeps piling up, including in the private sector, until the problem gets solved in another way: Massive inflation, but at a long-lasting and brutal expense to the economy.

Higher interest rates will enforce a sort of discipline on the drunken party, including in the private sector, and will sober up the participants, and prevent the kind of long-lasting destruction that massive inflation wreaks on the economy, and that would be a good thing.

Can the Government Even Pay the Rising Interest Expense on its Gigantic Debt as the Fed Pushes up Rates? Yes. Here’s Why | Wolf Street