I Told You So on This Too

I’ll have to look up the posts. They’re at least a decade old.

Inflation Will Make Government Budget Problems Worse (reason.com)

We financed our debt with short term low-interest loans. Now we must refinance at substantially higher rates. That makes our debt worse, which further slows down the economy and makes it more difficult for us to pay off our debt.

Right now is the worst possible time to be adding to our debt.

Now consider the public debt—especially the federal debt that ballooned from large deficits in recent years. (In 2020, federal revenues were $3.4 trillion and spending was $6.6 trillion.) The interest cost of the national debt in 2008 was $253 billion and remained at about that level through 2015. Even though the debt doubled in those years, sharply falling interest rates and low inflation worked to contain costs.

But that was yesterday. With today's higher inflation and rising interest rates (perhaps with more to come), the Congressional Budget Office (CBO) estimates the interest cost of public debt to be $413 billion in 2021. Obviously, any dollar spent on interest cannot be spent on government benefits and services to taxpayers.

What's Next?

Looking ahead, the CBO expects much of the same. For 2026, the interest rate on the 10-year Treasury projects to 2.6 percent versus the current 1.5 percent, with the interest cost of the debt rising to $524 billion. For 2030, it's 2.8 percent and $829 billion, respectively.

Now, we are talking about real money. Just to put $829 billion into perspective, in 2020, the United States spent $714 billion on defense, $769 billion on Medicare, and $914 billion on all nondefense discretionary spending. Back-of-the-envelope calculations strongly suggest that some spending categories will have to give.

Yes, very soon the interest on our debt will be the largest part of our budget. That is unsustainable. Forget about the long term. That’s unsustainable in the very short term. We’ve been fortunate for the last 15 years that inflation and interest rates have been so low. Now we’re going to get slammed.