U.S. Debt Is Massive and Expanding. It's Also Under Control.
The idea that even a small increase in rates would force the government to borrow just to pay the interest on its bonds is a nice theory, but the numbers don’t add up.
Is the clock ticking on U.S. debt?
Photographer: Sean Gallup/Getty Images
When it comes to the Federal Reserve and monetary policy, there are no shortages of talking heads who say the central bank can’t raise interest rates too much or else it would trigger a “debt bomb.” What this means is that because the federal debt is so high, even a relatively small increase in rates might force the government to borrow even more just to service the debt. This is a nice theory, but the numbers don’t add up. Interest rates paid to service the debt would need to double to get back to the 1991 peak of debt financing costs as a percentage of GDP — which didn’t touch off a debt bomb then —and much further for financing costs to explode.
Government bailouts in response to the 2008 financial crisis and, more recently, spending to support the economy during the pandemic has caused U.S. federal debt to jump to $28 trillion last year, or 123% of gross domestic product. The amount outstanding has risen from $3 trillion two decades ago. And debt should continue to climb with annual budget deficits forecast to be around $1 trillion or more annually over the next decade.