The Expensive US Federal Debt

(January 2023) The cost to finance the US growing public debt is rising as the Federal Reserve raised interest rates to combat the inflation. In 2022 the Federal Reserve lift rates from almost zero to 4.5%, which makes it that much more expensive to finance the US debt.

• During 2022, the federal government made $710 billion in interest payments, up from $580 billion the prior year, according to the US Bureau of Economic Analysis (BEA). For context, that’s more than the government spent on education and social services. And it’s nearly as much as the $755 billion spent on education or $767 billion spent on national defense.
• The surging cost to service the US $31.4 trillion debt leaves less room for Government to spend on other priorities, including everything from infrastructure and the education and healthcare to the national defence.
• Other economic indicators show that the debt burden has not crossed the unsustainable level. For example, share of interest payments to current federal budget expenditures went up to 13.8% in Q4 2022. However, during three decades in 1970s, 80s and 90s share of spending on interest payments stood between 14 and 22% of current total expenditures.
• Data on government receipts and expenditures shows that the Federal budget deficit is narrowing. In 2022 Federal budget deficit lowered to $1.4 trillion or 5.4% of GDP, compared to $2.8 trillion (11.9% of GDP) a year ago. The U.S. economy finished 2022 in solid shape and if the economic growth will not turn negative in 2023, debt service will stabilise.