Well, it didn’t take as long as I expected.
In case you missed it, it’s estimated that the federal government currently pays over $1 trillion a year just in interest payments on the national debt. That’s about $200 billion more than we spend on the military or Medicare.
Why are we suddenly paying so much money?
Debt servicing costs have doubled in the past 19 months as the annual federal deficit has ballooned and high interest rates have made borrowing more expensive.
The roots of this “sudden” problem date back to the early months of the COVID-19 pandemic, when government lockdowns devastated the economy.
Initially, there was broad bipartisan support for borrowing and spending large amounts of federal funds to stimulate the economy, but concerns that it could harm the economy in the long run were ignored. was.
In 2020, President Trump signed nearly $3 trillion in COVID-19 relief spending, and a year later President Biden signed trillions more in spending.
A number of critics, including former Democratic Treasury Secretary Larry Summers, have suggested that enough is enough and that Biden’s push will overheat the economy, The New York Times reported.
Other financial experts say we don’t need to worry that high inflation will hit us all, or that if it does happen, it will be temporary, as they liked to say. He said it was “temporary.”
But that optimistic prediction did not pan out.
The Federal Reserve’s goal is to keep inflation at about 2% annually, but inflation is expected to rise to 7% in 2021, 6.5% in 2022, and about 3.7% this year, according to the U.S. Inflation Calculator. It rose to
To achieve lower inflation, the Fed has had to raise interest rates 11 times in the past few years, which has caused serious pain in the wallets of everyone who needs a mortgage or a new car. ing.
In 2020, the average homebuyer will be able to get a 3% mortgage. Currently, the average 30-year fixed rate is about 8%. That means the cost of financing a $300,000 home over a 30-year term will increase by about $1,000 per month.
The same pain is felt in the federal budget.
A few years ago, the cost of servicing the federal debt was “only” about $400 billion a year, but rising interest rates and rising bond yields to get people to buy bonds suddenly doubled the cost of servicing the debt. I did. .
Worse still, interest rates will worsen as those in charge continue to spend profligately and borrow recklessly.
According to USDebtClock.org, the federal debt is rapidly approaching $34 trillion.
According to USDebtClock, we spent about $6.2 trillion in the past year and received about $4 trillion in government revenue. That means it would have to borrow about $2 trillion to make up the difference.
And remember, half of that shortfall is just the cost of paying off your current debt.
Moody’s, the last of the three major credit rating agencies, has warned that it may withdraw the AAA rating it has given the United States since 1917, as Standard & Poor’s did in 2011 and Fitch did last year. is not surprising.
As CNN reports, the downgrade by Moody’s is caused by the chronic inability of our representatives to hammer out a realistic and sustainable federal spending path, further raising our borrowing costs. I’m going to let you do it.
I’m no financial expert, but unless we come together as a country to clean up our fiscal mess, spending over $1 trillion on debt servicing will soon be considered a bargain.
Tom Purcell’s columns are distributed by the Cagle Cartoons newspaper syndicate. Email Tom@TomPurcell.com.