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Interest Costs Are Fueling America’s Debt Crisis

Interest is now more expensive than defense spending.

Will interest costs fuel America’s debt crisis? The ocean of red ink flooding the nation’s capital has garnered renewed attention over the past year. But taxpayers should not expect anything to change because politicians on both sides of the aisle are furrowing their brows and expressing concern rather than taking the necessary action to prevent Uncle Sam from falling off a fiscal cliff. Maybe they realize it is too late, and the country is at the point of no return. If so, they might be right.

Interest Accelerating the Debt Crisis

The Congressional Budget Office (CBO), a non-partisan budget watchdog, released the latest Monthly Budget Review, identifying that the fiscal year-to-date budget deficit is $1.2 trillion. The report revealed that revenues and spending were up from the same time a year ago, thanks to a 6% increase in mandatory outlays for Medicare and Social Security. The CBO also confirmed that interest charges have rocketed 42% as annualized interest payments have exceeded $1 trillion.

While it differs month to month, interest costs are now Washington’s second- or third-largest budgetary item, sitting just behind the retirement scheme and slightly ahead of defense spending. But this is only part of the story.

New data show that the average rate on the national debt is slightly above 3%, a 14-year high. The US government has sold about $6 trillion of Treasury bills, meaning they have maturities of one year or less. As a result, a huge chunk of the debt maintains an average interest rate of more than 5%. In addition, about $9 trillion will mature in the next 12 months, forcing officials to refinance the debt at higher rates, even if the Federal Reserve lower interest rates in this span.

It will only worsen in the coming months. In April, the Treasury Department published its borrowing estimates for the fiscal year’s final half. The report projected that the federal government would borrow $243 billion in the April-June quarter and another $847 billion in the July-September period.

Washington has and will continue to hold auctions of short-term debt securities to fund the government and manage ballooning interest charges. One of the reasons? As Liberty Nation News has reported in recent months, domestic and foreign investment demand for longer-term securities has been abysmal, driven by fiscal fears.

Looking ahead to the next decade, here are some numbers to determine if the United States is on a fiscally sustainable path. By 2034, the federal government will have recorded more than $16 trillion in cumulative deficits, the national debt will have surpassed $45 trillion, and cumulative interest payments will be close to $13 trillion (the CBO projects $70 trillion in interest payments over the next 30 years!). And this is assuming the United States does not slip into a recession or become engulfed in another major war.

Threats of Interest to the Government

Even if lawmakers subscribed to the notion that the federal government must be involved in every aspect of citizens’ lives and support the economic landscape, growing interest payments will threaten this objective. Indeed, the debt crisis will prevent Washington from maintaining the status quo. Politicians of all stripes will be forced to concede that something has to give. President Joe Biden and his administration have proposed various tax schemes to generate more revenue, which is already close to or at a record high. However, all of these endeavors, from taxing unrealized gains to offering the tax-collecting agency more funding, will not be enough to keep Social Security intact, ensure the US empire extends its tentacles to every corner of the globe, and maintain the welfare state for households and corporations.

Republicans and Democrats have proposed establishing a debt commission. It will likely consist of more talking, meaning the fiscal can will be kicked down the road again until the debt crisis leaves Washington no choice but to take drastic actions that could have devastating consequences.

Read More From Andrew Moran

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