Economist Peter Morisi breaks down what the national debt is, why it has ballooned to more than $34 trillion, and what it means for Americans.
The sharp rise in interest rates over the past year may cause some collateral damage to the U.S. government’s finances.
Because when interest rates rise, federal borrowing costs Debt will also increase by $34.24 trillion.
Interest payments on the national debt are the fastest-growing part of the federal budget, on track to surpass both Medicare and defense spending by 2024, according to new projections from the Congressional Budget Office.
Payments are expected to triple from about $475 billion in fiscal year 2022 to a staggering $1.4 trillion in 2032. By 2053, interest payments are projected to soar to $5.4 trillion.
“We the people, tired of growing government debt, have been arguing for years that if interest rates rise, government debt could become very expensive, given the short maturities of the debt. This is particularly worrying,” said senior investigator Veronique de Rouzy. Fellow at the Mercatus Center at George Mason University. “The time has finally come, but it doesn’t seem to have had any effect on the actions of Congressional officials.”
Large deficits and high interest rates reduce the sustainability of the federal debt
Interest payments on the national debt are the fastest-growing part of the federal budget, on track to surpass both Medicare and defense spending by 2024. (Photographer: Julia Nickinson/Bloomberg via Getty Images/Getty Images)
as share of the economy, Total interest on government bonds is expected to reach 3.1% of GDP this year, the broadest measure of domestically produced goods and services. This percentage is expected to rise to 3.9% by 2034.
“You can think of two-thirds of the increase in net interest payments to be due to interest rate increases and one-third to the amount of debt,” CBO Director Philip Swagel told reporters in early February. .
For years, the United States has been able to borrow cheaply because interest rates have been at historically low levels. But as the federal funds rate rises, the short-term interest rate on Treasury bills also rises, raising the cost of federal borrowing.
US national debt exceeds $34 trillion for the first time in history
The Fed has raised interest rates 11 times in just 16 months, pushing interest rates to their highest level since the 2008 financial crisis. Policymakers have since signaled that they plan to end tightening policy and cut interest rates later this year, but have not said when such cuts will occur.
Federal Reserve Chairman Jerome Powell speaks during a press conference at the Federal Reserve Board in Washington, May 3, 2023. (Saul Loeb/AFP via Getty Images/Getty Images)
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The nation’s debt exceeded $34 trillion in January due to a surge in government spending. president biden And Democrats.
According to the Committee for a Responsible Federal Budget, Biden has already approved approximately $4.8 trillion in borrowing as of September 2022, including the coronavirus relief plan known as the American Rescue Plan. The bill includes $1.85 trillion, and $370 billion in a bipartisan infrastructure bill. He advocates deficit reduction.
That’s about half of the $7.5 trillion that former President Donald Trump increased the deficit during his time in office, but far more than the $2.5 trillion he approved at the same point in his term.
Biden has repeatedly defended his administration’s spending and boasted of cutting the budget deficit by $1.7 trillion.
“Parenthetically, I reduced the debt by $1.7 trillion in my first two years. No president has ever done that,” Biden said recently.
