- The US debt has hit $40tn, raising concerns as the nation is nearing its $41.1tn debt ceiling.
- The Congressional Budget Office forecasts that the US debt will climb to about $64tn by 2036.
- The Treasury's recent buyback of government debt had only a short-lived impact, with long-term borrowing costs bouncing back up a day later.
- Long-term interest rates in the US are at multi-decade highs due to concerns about inflation and extreme levels of government borrowing.
- Investor appetite for lending to the US government through buying bonds is diminishing, creating a vicious cycle requiring ever higher returns.
- Higher interest rates make funding the deficit more expensive, according to economist Mohamed A. El-Erian.
The US national debt has reached a staggering $40 trillion, a milestone that has raised significant concerns domestically and internationally.
According to the Congressional Budget Office, the debt is projected to climb to approximately $64 trillion by 2036, driven by increased public spending under both the Trump and Biden administrations.2
It took almost 200 years for America's national debt to reach $1 trillion for the first time, highlighting the rapid acceleration of borrowing in recent years.
At the beginning of Trump's first presidential term in 2016, the national debt was just under $20 trillion, effectively doubling in the last decade.
The debt is currently rising at an alarming rate of about $90,000 every second, or $7.8 billion a day, according to the Congress Joint Economic Committee.
Interest payments on government debt have surged, now accounting for almost 20% of tax revenue, which is larger than defense spending, as noted by economist Mohamed A. El-Erian.6
He warns that long-term interest rates in the US are at multi-decade highs, driven by inflation concerns and extreme levels of government borrowing.4
The diminishing investor appetite for US government bonds is creating a “vicious” cycle, requiring the government to offer higher returns to attract buyers.5
In response, the Treasury Department has attempted financial engineering by buying back government debt to boost demand, but the effects have been short-lived, with long-term borrowing costs rebounding quickly.
“Long-term interest rates are at multi-decade highs, partly due to inflation and extreme government borrowing, making deficit funding more expensive, says economist Eric Swanson. Investor appetite for US bonds is "diminishing," creating a "vicious" cycle, and a Treasury buyback had only a short-lived impact.”
BBC
