It has been the United States for a long time The largest defense budget in the worldSpending this year is expected to approach $900 billion.
However, this spending is quickly being outpaced by the fastest-growing portion of federal outflows: interest payments on the national debt.
to The first seven months of fiscal year 2024, which began last October, net interest payments reached $514 billion, exceeding defense by $20 billion. Budget analysts I think this trend will continueThis makes 2024 the first year ever in which the United States will spend more on interest payments than it does on national defense.
Just two years agoInterest payments were the seventh largest Federal spending categorybehind Social Security, health programs other than Medicare, income assistance, national defense, Medicare, and education.
Interest is now the third largest expenditure after Social Security and Health. And it's not because any of the other programs have diminished. While most government expenditures grow modestly from year to year, interest expenses in 2024 will be 41% higher than in 2023.
Interest payments balloon for two obvious reasons.
The first is that The annual deficit has explodedAnd he left the nation with A A whopping $34.6 trillion in total federal debt156% higher than the national debt at the end of 2010.
In the 1990s, the federal deficit averaged $138 billion annually. In the 2000s, the number was $318 billion. In the first decade of the twenty-first century, it reached $829 billion. Since 2020, the annual deficit has ballooned to $2.24 trillion, largely due to pandemic-related stimulus measures in 2020 and 2021. Forecast for 2024 It is a deficit of 1.5 trillion dollars.
As a share of GDP, the annual deficit has almost doubled in just ten years, from 2.8% in 2014 to 5.3% in 2024. So, there's a lot of borrowing to pay interest on.
The government is also paying more to borrow as interest rates have risen over the past two years. Like consumers who buy homes and cars, Uncle Sam benefits from cheap money when interest rates are low and bears a heavier burden when interest rates are high.
From 2010 through 2021, the average interest rate on all Treasury securities sold to the public was just 2.1%, which helped keep total interest payments in check.
But in 2022, the Fed began raising interest rates to curb inflation, and the government now pays an average interest rate of 3.3%. So, the amount of money borrowed continues to rise, and the cost of borrowing that money is also rising.
More taxpayer money going to interest expenses will ultimately leave less money for everything else, and at some point, the Treasury won't be able to borrow its way out of the problem anymore.
It is an unsustainable situation, which could lead investors to lose confidence in the government's creditworthiness and demand higher rates to buy Treasury bonds.
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However, the urgency of the problem is open to debate.
At a recent Milken Institute conference in Los Angeles, prominent figures such as billionaire investor Ken Griffin and former House Speaker Paul Ryan warned of an impending debt crisis if government interest costs continue to rise. But several prominent financiers have also described the United States as the best investment destination in the world, despite all its problems.
And Many expectations So far, it has been shown that having a debt crisis when interest expenses were much lower was a mistake.
Two people who seem unfazed by America's debt burden: President Joe Biden and former President Donald Trump, are the leading candidates in this year's race for the White House. Nor does he make deficit reduction a focus of his presidential campaign.
Biden has a plan of sorts. He did Increase taxes on corporations and the wealthy And use some of these revenues to reduce the annual deficit. But Biden also wants to spend more on social programs, which could offset any savings.
Trump says he would encourage more oil and natural gas drilling, which would somehow produce a windfall in tax revenue that would pay off the debt. But there is There is no clear way for this to happenNo matter the size of the drilling.
Moreover, the two men oversaw a massive rise in the national debt.
The national debt rose by $7.8 trillion during Trump's four years as president and $6.8 trillion during Biden's first three years and four months.
Earlier this year, the Committee for a Responsible Federal Budget helped Yahoo Finance analyze who is responsible for the national debt, and the blame more or less falls on administrations of both parties who borrowed to finance wars, tax cuts, spending programs, and stimulus measures during the post-war period. Recession.
When it comes time to fix the debt, the inevitable solution will be a combination of spending cuts and tax increases, which will make many people unhappy.
Which reveals the real reason why no politician wants to address the problem, which is that everyone hopes to be the man after them.
Rick Newman is a senior columnist at Yahoo Finance. Follow him on Twitter at @rickjnewman.
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