The United States is facing a long-term fiscal crisis. Its national debt continues to soar and it is now facing a perfect storm as interest expenses are quickly reaching alarming levels. That’s equal to the U.S. government’s total interest cost in the month of April alone — $101.7 billion. This time, it rattled the total interest payments for the fiscal year so far up to a staggering $684.1 billion, or 9.5 percent more than this time last year. These figures highlight a critical issue: the U.S. government has a serious interest problem, one that raises concerns about the sustainability of its current borrowing and spending habits.
The U.S. Federal Reserve has done unprecedented things to respond to this crisis. To date, it has monetized more than 60 percent of the inherited debt. The Federal Reserve is purchasing U.S. bonds at a pace that is unmatched by any other domestic or foreign investor. As a result, it has absorbed the bulk of our national debt. As of now, it has close to $700 billion in Treasuries maturing in one year or less. It has another $1.45 trillion scheduled to mature within the next five years.
As these debts come due, they will represent an ever-growing millstone around the neck of the central government’s finances. Approximately a third of the U.S. public debt, totaling $9.3 trillion, is set to mature by the end of the first quarter of 2026. In fact, over the last two years, DEBT was issued (net borrowing) – over $3.1 trillion of it. Today, however, it is approaching its maturity date.
A Closer Look at the Numbers
In absolute terms, the scale of the U.S. government’s interest payments is staggering. During fiscal 2024, the federal government is on track to pay an eye-popping $1.13 trillion in interest costs. It’s even more than national defense and Medicare’s combined outlays in fiscal 2025. This trend highlights the critical imperative that policymakers must recognize in tackling the nation’s rising debt burden.
The U.S. national debt is on pace to cost an astounding $13.8 trillion in net interest over the next 10 years. This projection underscores the deepening financial stress on our country. These figures illustrate the need for urgency. Absent significant interventions on the revenues and spending sides of the ledger, interest costs will continue to skyrocket.
Indeed, one often overlooked reason for this predicament is the surging yield on U.S. Treasury bonds. As a result, the 10-year Treasury yield recently jumped to close to 4.6 percent. At the same time, the 30-year Treasury yield soared to its highest level in almost 18 years. These increases only increase the costs to borrow and make the position of government finances look worse.
The Role of the Federal Reserve
The U.S. Federal Reserve’s role in purchasing government bonds has been instrumental during this time of economic strife. Having soaked up such vast amounts of Treasury bonds, it’s done itself a great service by keeping rates low in the process. That move, in turn, has allowed the federal government to borrow much more deeply.
This approach carries risks. The Fed’s balance sheet is now full of Treasuries. Because as a result of rising rates, the mere prospect of rising costs becomes their greatest peril. With nearly $700 billion in short-term Treasuries and another $1.45 trillion maturing soon, the Federal Reserve will face critical decisions regarding its bond holdings and monetary policy direction.
Over $3 trillion of U.S. debt will mature within the next few years. With $139 trillion dollars in liabilities, the answer to those questions is hugely important as we face rising interest rates and economic pressures on the horizon.
Implications for Future Policy
Yet the leading economists and policymakers on both sides of the aisle have raised the alarm about the current trajectory of U.S. debt. The share of debt interest payments in GDP is now at a record high among all developed economies. This worrisome trend indicates we are nearing the crisis point for the nation’s financial health.
Today, interest payments get more money than our core priorities, including defense and health care. I think it’s about time we reassess our fiscal priorities. Experts across the board are cautioning that the US government simply cannot continue borrowing and spending money at the rate that it has been.