Interest Rates Could Drive Up Deficits

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Interest rates have been in check for years now.

But Congressional Budget Office (CBO) Director Doug Elmendorf says jacked-up interest rates to seriously imperil federal deficits.

FOX obtained a letter that Elmendorf wrote to House Budget Committee Chairman Paul Ryan (R-WI) where he warns that a spike in rates could blow already exploding budget deficits into unprecedented fiscal orbits.

In the letter, Elmendorf lays out three scenarios for Ryan about how interest rates could impact federal deficits.

The CBO estimates that if interest rates hover around their levels of the 1990s, the U.S. would shell out an additional $1.1 trillion for the deficit over a decade in interest payments alone.

The CBO says if interest rates come in at what economists call "blue chip levels," (meaning they hit the marks that private sector economists anticipate) interest on the debt would contribute $1.2 trillion to the deficit.

But the nightmare sequence is if interest rates revert to the staggering levels of the 1980s. In that case, the U.S. could heap an additional $5.1 trillion to the debt in interest payments.

During a speech on Thursday, Elmendorf predicted that the net interest on the debt as a percentage of Gross Domestic Product would vault to unprecedented levels in the next ten years.