U.S. National Debt Tops $30 Trillion as Borrowing Surged

on Feb2
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WASHINGTON — America’s gross national debt topped $30 trillion for the first time on Tuesday, an ominous fiscal milestone that underscores the fragile nature of the country’s long-term economic health as it grapples with soaring prices and the prospect of higher interest rates.

The breach of that threshold, which was revealed in new Treasury Department figures, arrived years earlier than previously projected as a result of trillions in federal spending that the United States has deployed to combat the pandemic. That $5 trillion, which funded expanded jobless benefits, financial support for small businesses and stimulus payments, was financed with borrowed money.

The borrowing binge, which many economists viewed as necessary to help the United States recover from the pandemic, has left the nation with a debt burden so large that the government would need to spend an amount larger than America’s entire annual economy in order to pay it off.

Some economists contend that the nation’s large debt load is not unhealthy given that the economy is growing, interest rates are low and investors are still willing to buy U.S. Treasury securities, which gives them safe assets to help manage their financial risk. Those securities allow the government to borrow money relatively cheaply and use it to invest in the economy.

But that backdrop could start to change as the Federal Reserve prepares to raise interest rates, which have been set near zero since the start of the pandemic, to curb inflation.

The Fed indicated last week that it was on track to begin increasing rates at its next meeting in March. Investors are predicting the central bank could usher in five rate increases this year, bringing rates to a range of 1 to 1.25 percent.

The Fed has also been keeping long-term interest rates low by buying government-backed debt and holding those securities on its balance sheet. Those purchases are set to wrap up next month, and last week, the Fed signaled it planned to “significantly” shrink its bond holdings.

Esther L. George, the president of the Federal Reserve Bank of Kansas City, suggested during a speech this week that the Fed’s big bond holdings might be lowering longer-term interest rates by as much as 1.5 percentage points — nearly cutting the interest rate on 10-year government debt in half. While shrinking the balance sheet risks roiling markets, she warned that if the Fed remained a big presence in the Treasury market, it could distort financial conditions and imperil the central bank’s prized independence from elected government.

As rates rise, so does the amount that the United States owes to investors who buy its debt. The Congressional Budget Office estimates that if interest rates rise in line with their own forecasts, net interest costs will reach 8.6 percent of gross domestic product in 2051. That would amount to about $60 trillion in total interest payments over three decades.

“A larger amount of debt makes the United States’ fiscal position more vulnerable to an increase in interest rates,” the C.B.O. said in its long-term budget outlook.

In a recent report, Brian Riedl, a senior fellow at the Manhattan Institute, a conservative think tank, pointed to the C.B.O.’s prediction that the average interest rate on 10-year Treasury notes would rise from 1.6 percent to 4.9 percent over the next 30 years. He estimates that if interest rates exceed that forecast by just a percentage point, it will mean another $30 trillion in interest costs during that time.

Mr. Riedl described policymakers who expected interest rates to remain low indefinitely as “hubristic” and said it was risky to assume that low rates would keep the debt stable over time.

“The economy is unpredictable, and we should never take low interest rates and inflation for granted,” Mr. Riedl said in an interview.

The interest on the debt could soon be the fastest-growing part of the federal budget.

Biden administration officials insist that they view fiscal responsibility as a priority. They have pledged that their economic agenda will be fully paid for through tax increases on wealthy Americans and corporations and by more rigorous enforcement of the tax code. Ms. Yellen has predicted that inflation will moderate later this year and return to normal levels as supply chains stabilize.

In recent months, the budget deficit has started to shrink as a stronger economy has boosted tax receipts and as government payments of pandemic relief money have slowed.

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