Key Takeaways
- Interest on the national debt has surpassed $1 trillion for the first time.
- Federal government spent $103 billion on debt interest last month alone.
- Foreign ownership of U.S. debt has decreased to one-third from 43% a decade ago.
For the first time in American history, interest on the national debt has crossed $1 trillion. Projections indicate it could reach $3 trillion in just five years.
Last month, the Treasury reported that the federal government collected $324 billion in revenue.
Out of this, $103 billion was spent solely on servicing the debt, which is almost a third of the total revenue. Additionally, the government spent a total of $671 billion, resulting in $347 billion in new debt for the month. On an annual basis, this equates to $4 trillion collected, $1.2 trillion in interest, and $8 trillion spent.
The cost of debt is rising rapidly. Four years ago, the average federal debt interest rate was 1.6%, but it has now doubled to 3.2%. This is set to increase further, as old debt is replaced by new debt with higher interest rates, currently around 4.5%.
Borrowing increasing
Treasury borrowing has been unprecedented in peacetime, with almost $1 trillion borrowed in the first six months of this year and another $850 billion planned for the next three months. The sustainability of this borrowing depends on the Treasury market remaining stable, but foreign buyers are reducing their holdings of U.S. debt.
Currently, foreign ownership of U.S. debt has decreased to one-third, down from 43% a decade ago. The burden is increasingly falling on individual Americans, whose holdings have risen from 13% to 27% of publicly held debt. This exposes them to the risks of rising inflation and potential disruptions in the Treasury market.
The growing federal debt is hitting unsustainable levels, and Washington shows little interest in addressing the problem.
