The US Literally Cannot Repay Its National Debt

US National debt is expected to surpass its historical peak of 106% of GDP. It is rising from 99% this year to 122% in 2034. This increase will also raise the US debt GDP ratio. This situation sets America in a difficult position. While boosting taxes is also controversial right now, cutting back in other areas is unlikely to get public acceptance. To exacerbate problems, the US has not seen in more over two decades another difficulty: increased interest rates.

The Federal Reserve in the United States is the central bank that sets interest rates; so, they have responsibility. The Federal Reserve operates independently under contract with the US government. It mostly controls interest rates to preserve economic stability and value of the US dollar. But the current inflation rise has caused the Federal Reserve to hike interest rates from zero to roughly 5.5%.

The maturity date of government debt helps to explain the notable increase in interest rates. The US owes the bondholders when government debts mature. The US deficit means the country runs without the required money for repayment. It turns to rolling over the debt. The US does this by building fresh bonds to pay off the existing ones. The difficulty stems from the current environment. The refinancing now calls for higher rates. The earlier debt was obtained at reduced interest rates. As extra debts are rolled over, the annual interest payments rise and worsen the deficit.