I Now Believe Our National Debt Is a Problem

Publicly held national debt has risen to about 100 percent of GDP, up from 39 percent in 2008 and 79 percent in 2019. For much of U.S. history, economic growth exceeding the interest rate on debt made it easier to service obligations. Current fiscal conditions are more difficult because higher deficits and climbing interest rates raise the cost of borrowing. The result increases the likelihood that debt levels will keep rising rather than stabilizing. A simple interest-rate arithmetic example shows that when the interest rate exceeds income growth, each year worsens the balance. Recent events tied to inflation pressures have contributed to lenders demanding higher compensation through higher interest rates.

"The national debt held by the public, about $31 trillion, is now the size of the U.S. economy, up from 39 percent of the economy in 2008 and 79 percent in 2019. For most of the country's history, the fact that the economy's growth rate surpassed the interest rate on the debt enabled us to keep paying our bills."

"We concluded that the combination of higher deficits and climbing interest rates raises the risk that borrowing will become more expensive and will push government debt levels to climb relentlessly. This is a debt spiral."

"Say both your annual income and your debt equal $100. Suppose you face a 2 percent interest rate but you get a 4 percent raise. You'll have no problem paying your creditor their $2 in interest from your $4 in added income. But if you swap those rates around, every year puts you further in the hole."

"Events of the past few weeks reveal that the problem of rising interest rates is not theoretical. President Trump's war in Iran, which is putting upward pressure on inflation, has led lenders to insist on extra compensation-that is, higher interest rates-to offset inflation's erosion of the value of future payments."

Read at The Atlantic