The cost of carrying debt.
Author | Suderman, Peter |
Position | POLICY |
SOMETIME IN 2017, the total U.S. national debt will hit $20 trillion--more than the total gross domestic product (GDP) of the country in a year. That figure is projected to keep growing over time, thanks to rising annual deficits. Debt held by the public, a measure that counts all federal securities sold to individuals, corporations, and state and local governments, plus foreign investors, currently clocks in around $14 trillion. That figure is expected to hit $23 trillion in 2026.
There are risks to carrying a debt burden this big. It increases the nation's susceptibility to a fiscal crisis if interest rates rise, and it limits the sorts of projects government can take on in a constrained fiscal environment. The greater the debt, the greater these risks become.
One of the biggest drawbacks of a high debt load is the cost of paying interest, which is currently one of the largest spending categories in the U.S. budget. At $241 billion last year, debt service--which buys the country nothing except a continuation of its debt--is effectively a program unto itself.
Although today's unusually low interest rates aren't likely to return to historic norms anytime soon, they are expected to increase over the coming years. That means that interest payments will go up too. Indeed, according to a December report by the Committee for a Responsible Federal Budget, relying on data from the Congressional...
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