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US government pays almost a trillion dollars in interest on record debt
Find out in this article how the US government will spend almost a trillion dollars on interest payments on its record debt. According to the Committee for a Responsible Federal Budget (CRFB), interest payments are expected to exceed the government's defense budget and become the second largest government expenditure after Social Security. Read on to learn more about spending growth relative to the U.S. economy and how interest rates affect national debt.
US government pays almost a trillion dollars in interest on record debt
In 2024, the U.S. government is expected to spend nearly a trillion dollars to cover interest on its record debt. This is according to data from the Congressional Budget Office (CBO) cited by the Committee for a Responsible Federal Budget (CRFB), a nonprofit organization that highlights issues with significant financial impact. According to the CRFB, interest spending is expected to exceed the government's national defense budget of $822 billion. That would be the first time since at least 1940. The CRFB also predicts that interest payments this year will exceed spending on Medicare and become the second-largest government expense, just behind Social Security. The increase in the cost of interest payments relative to the size of the U.S. economy is also concerning. Net interest costs nearly doubled from 2020 to 2023, from $345 billion to $659 billion. As a share of GDP, interest rates rose from 1.6% in 2020 to 2.4% in 2023. This year, interest rates are expected to rise to 3.1% of GDP, surpassing the record of 3.2% set in 1991. The national debt is currently $34.332 trillion.
Tabel:
| Year | Interest expenses (in billion dollars) |
|---|---|
| 2020 | 345 |
| 2021 | 456 |
| 2022 | 578 |
| 2023 | 659 |
| 2024 | 870 (estimated) |
| 2025 | 900 (predicted) |
The U.S. government's rising interest payments have potentially far-reaching effects on the country's economy and budget. A rise in interest rates means more money is spent servicing debt and less is available for other programs and investments. This could lead to cuts to key government sectors such as education, healthcare and infrastructure. In addition, higher interest rates could reduce the attractiveness of government bonds as the yield becomes less attractive compared to other forms of investment.
Historically, the U.S. government's current interest burden is still relatively low compared to the outstanding debt. In the 1990s, the interest rate on the government's debt was more than 5%. Still, the rise in interest payments in recent years is worrying, especially as the government is already struggling with high levels of debt.
It remains to be seen how rising interest payments will affect the US economy and budget. Effective debt management will be crucial to minimize the impact on the country's long-term financial stability. There is also a need to develop long-term strategies to reduce debt and strengthen the economy to reduce dependence on debt and interest payments.