There's a lot of hand-wringing in Washington about the pending explosion of entitlement spending like Medicare, Medicaid and Social Security and how they will sink the U.S. deeper into the red in the coming years.
But Congressional Budget Office (CBO) Director Doug Elmendorf says there's another factor to watch in the coming years: net interest as a percentage of Gross National Product (GDP).
In 1970, net interest made up only three-tenths of one percent of the annual budget deficit. By 2007, that figure rose to 1.2 percent. And Elmendorf predicts it will erupt to 3.2 percent by 2021.
"The qualitative point is that (interest) is about to become a much bigger burden in the economy," said Elmendorf during an address before the National Economists Club in Washington, DC.
With a chart, Elmendorf showed how the U.S. percentage of GDP would increase exponentially to a level similar to Greece if the same policies continue.
"We will be entering territory that is unfamiliar to developed country as we understand it," Elmendorf said cryptically.
Elmendorf also said that the total amount of money that the government spends on all programs will make up about 24 percent of the GDP by 2021. It accounts for just under 20 percent now and has remained nearly steady for the past 40 years.
Elmendorf noted that Congress faces a set of Hobson's Choices when it comes to wrestling with spending in an effort to harness the deficit. He noted that lawmakers would have to "drastically restrict spending" in order to slash the deficit. But he cautioned against doing too much, too fast.
"Changes of the magnitude required could disproportionate," he said.
Overall, Elmendorf painted a bleak outlook for the nation's job outlook.
"A return to a normal economy will take years," Elmendorf said, adding thatfederal deficits have "soared" and that "the United States faces daunting economic challenges."
The CBO predicts unemployment will revert to 5.25 percent by 2016. But Elmendorf doubts the unemployment meter will move much in the next few years.
He predicts unemployment of 9.25 percent in the fourth quarter of this year and 8.25 percent in the fourth quarter of 2012.
If Elmendorf brokered much good news, it was tied to inflation. The CBO estimates that inflation will remain tame in the near term as assets in the economy remain "unused."
But Elmendorf says the economy could be subject to some inflationary upticks if oil prices spike.
Then, there is the looming question of a potential government shutdown if the House, Senate and President Obama can't agree on spending and budget cuts for the rest of the fiscal year. The current, temporary spending law that's running the government expires March 4. If a new law isn't in place, most government functions come to a screeching halt.
Elmendorf indicated that the impact on the economy and federal deficits is contingent upon a variety of factors. He cited the length of a potential shutdown, and whether or not federal employees were paid or received back pay.
Federal workers furloughed due to the government shutdowns of 1995-96 ultimately received pay they would have received had they been on the job.