Photo by Karolina Grabowska
Although most Americans have been complaining about inflation, it seems like many realize the government carries a major debt–-one its having trouble paying off. The United States faces an alarming financial reality as its annual interest payments on its massive debt pile have surged past the $1 trillion mark. This development raises major concerns about the nation’s fiscal path, economic stability, and the sustainability of its debt burden.
Here are the top five critical facts about the unsustainability of America’s $1 trillion annual debt interest.
Recent analysis by Bloomberg reveals that the estimated annualized interest payments on the U.S. government’s debt have crossed the $1 trillion threshold. This is a significant increase from the figures projected just 19 months ago.
Interest costs in the fiscal year that ended Sept. 30 totaled a whopping $879.3 billion, up from $717.6 billion the previous year, Bloomberg reported.
The growing interest expense on the national debt is sparking debates about the U.S. fiscal path. The heavy borrowing by the U.S. government has contributed to rising bond yields, causing concerns among investors and credit rating agencies. Fitch Ratings even downgraded U.S. government debt in August, citing the unsustainable debt trajectory, Bloomberg reported.
The recent increase in yields on long-term Treasuries suggests that the government will continue to face a mounting interest bill.
Long bonds refer to the longest maturity bond offering from the U.S. Treasury. It can also carry over to the traditional bond markets to include the longest-term bond available from an issuer. The longest maturity offering from the U.S. Treasury is the 30-year bond which follows the 10-year bond.
As interest rates climb, the cost of servicing the debt becomes more challenging. This, of course, impacts the federal budget, meaning that the government might have to cut funding for other programs that the public finds important.
“There will be further increases to Treasury coupon auctions and T-bills outstanding going forward,” Bloomberg Intelligence strategists Ira Jersey and Will Hoffman wrote in a research note. “Besides deficits of over $2 trillion in the foreseeable future, climbing maturities following the increase of issuance from March 2020 will also need to be refinanced.”
Excessive public debt has long-term economic consequences. Research indicates that high levels of public debt can stifle economic growth. As the debt-to-GDP ratio climbs, it can lead to reduced private investment, lower incomes, and increased risk of a fiscal crisis. This, in turn, could negatively affect national security, Bloomberg reported.
The dominance of entitlement spending in the federal budget has led to a decline in defense spending as a percentage of GDP. While entitlement programs like Social Security, Medicare, and Medicaid have increased, defense spending has decreased, The Cato Institute reported.
“Absent significant reform or a major expansion of the total federal budget, the rising costs of Social Security, Medicare, and Medicaid will continue to crowd out defense spending. In the extreme, if federal budgets are held near today’s levels as a share of GDP, nondefense discretionary spending is not reduced significantly, and mandatory spending is not brought under control, there will soon be no money left for defense,” Former Principal Research Scientist for Massachusetts Institute of Technology’s Security Studies Program Cindy Williams told The Cato Institute.
Photo by Karolina Grabowska: https://www.pexels.com/photo/roll-of-american-dollars-tightened-with-red-band-4386471/
