The cost of servicing US debt is expected to reach a new record high by 2025, as rising interest rates make it more expensive to borrow money.
In a recent note to clients, Goldman Sachs strategists said that interest payments on US debt are on track to rise from 3% of GDP in 2024 to 4% of GDP by 2030. This is due to the fact that the Federal Reserve has been raising interest rates in an effort to combat inflation.
The strategists also noted that interest payments are on track to become the largest category of federal spending over the next decade. This is a concerning development, as it suggests that the US government is spending more money on servicing its debt than on investing in critical priorities such as education, healthcare, and infrastructure.
The rising cost of debt is also a burden on taxpayers. When the government has to pay more interest on its debt, it has less money to spend on other programs and services. This can lead to higher taxes, cuts to government programs, or a combination of both.
The US debt is already at a record high of $33 trillion. This debt is the result of decades of overspending and tax cuts. The rising cost of debt is only going to make it more difficult for the US government to balance its budget and reduce its debt burden.
In addition to the rising cost of debt, the US is also facing a number of other economic challenges. These challenges include inflation, supply chain disruptions, and a potential recession. The rising cost of debt is only going to make it more difficult for the US to address these challenges and maintain a healthy economy.
There are a number of things that can be done to address the rising cost of US debt. One option is to raise taxes. This would generate more revenue for the government, which could be used to pay down debt and reduce interest payments.
Another option is to cut spending. This could be done by reducing the size of the federal government or by eliminating unnecessary programs. However, cutting spending could also lead to job losses and cuts to important services.
A third option is to reform the tax code. This could involve closing loopholes that allow wealthy individuals and corporations to avoid paying their fair share of taxes. It could also involve simplifying the tax code, which would make it easier for businesses to comply with the law and reduce the cost of tax compliance.
Finally, the US government could also try to reduce its debt by growing the economy. This could be done by investing in infrastructure, education, and research and development. A growing economy would generate more tax revenue, which could be used to pay down debt and reduce interest payments.
Addressing the rising cost of US debt is a complex challenge, but it is one that must be addressed. The US cannot afford to continue borrowing money at an unsustainable pace. The government must take action to reduce its debt burden and put the country on a more sustainable fiscal path.
