Trillions of dollars appear to be a pittance to Ben Bernanke, President Barack Obama’s Federal Reserve chairman.
At a Thursday Joint Economic Committee hearing, South Carolina Republican Sen. Jim DeMint pointed out that the Federal Reserve is keeping interest rates artificially low and, by extension, also keeping payments on U.S. debt low — allowing Congress to potentially over-borrow.
DeMint probed Bernanke on how increasing interest rates would affect U.S. debt payments.
According to Bernanke, if interest rates were raised by just one percent, the deficit would increase $100 billion annually. DeMint point out that would be $1 trillion over a decade.
“If we were to raise interest rates by a full percentage point, and ignoring the fact that most debt is of longer duration, it would not reprise, that would still only raise the annual deficit by something a little over $100 billion,” Bernanke said, noting that the amount is relatively small with an annual deficit of a $1 trillion.
“That’s real money,” DeMint responded.
“Trillion there, a trillion here,” Bernanke responded. “Yes, sir I agree with that. But what I’m saying is that the situation is — the deficits are so large, particularly going out over the next few years, irrespective of the level of interest rates, that I would think that Congress would have plenty of motivation to try to address that and that whether or not interest rates are currently 1.5 percent for ten years or 2.5 percent for ten years doesn’t make much difference.”