The “Interest” Debt Reduction Scam

Counting interest savings on future debt accumulation, as a debt reduction, is at least deceiving. President Obama included $4.3T in future interest as part of his debt savings plan. This is 15% of Obama’s savings and 10% of total his total plan. Republicans have included similar statements in their plan. Let’s use a personal loan as an example of why this is a scam.

Suppose you have borrowed $15,000 and have paid the simple interest of 5% per year, or $7,500 over 10 years. Now you want to borrow at least $1,000 more per year for the next 10 years at 5% interest. The interest you will pay on the new money over 10 years is $2,750. Adding this new interest payment to the old payment totals $10,250 over the 10 years, and your total debt becomes $25,000.

Suppose you decide to reduce your borrowing to only $845 more per year resulting in interest payments of $2,324 over 10 years, an amount $426 less than the $1,000 example. Can you now claim a savings of $426 as President Obama did?

If you had decided not to borrow any more money, you could claim the total $2,750 as savings!

Now multiply all of the above numbers by 1,000,000,000 and you have our present national deficit and debt numbers. Decreasing the rate of debt growth does not reduce the debt. Reducing interest payments on some future new debt is not a debt reduction.

We must be conscious of these number games career politicians use to deceive us.

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Dr. Cleland’s Ph.D. is from Purdue University where he specialized in complex systems theory. His technical training and experiences includes analyses of many types of systems, involvement with numerous federal, state, and local agencies, and management of a broad set of set of professionals, services, and trades people. He has managed scientists, engineers, policemen, firefighters, environment, health, safety and emergency planning experts, building trades and maintenance crafts personnel, and others.

One Response to “The “Interest” Debt Reduction Scam”

  • Interesting point of view.Thanks for the post. Once you’ve put one of his books down, you simply can’t pick it up again. (talking about Henry James) Mark Twain 1835 1910

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September 2011
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