A Bloomberg report said this week:
U.S. interest payments on its national debt are estimated to have surged above $1 trillion on an annualized basis as of the end of October,.
The calculations were based on U.S. Treasury data, which discloses the government’s monthly outstanding debt balances and the average sum of interest it pays.
The annualized cost of debt has doubled in the past 19 months as rising interest rates have made borrowing more expensive and represented 15.9% of the entire federal budget for fiscal year 2022 as of last month, the outlet said.
“This high proportion of interest payments as a share of federal spending has precedent, as the portion before 2000 was over 14% in most years,” Bloomberg analysts wrote in a note.
“The challenge for the government is tempering mandatory spending and trying to reduce the need to issue more debt. That is the reason we see interest payments climbing even though we forecast lower Treasury yields.”
Concerns are mounting over U.S. fiscal policy amid massive government borrowing and soaring interest payments on the debt pile, the report said.
U.S. National Debt — $33 Trillion
In September, the U.S. national debt hit an all-time high of $33 trillion. The previous record of $32 trillion had been set in June, when Washington avoided a technical default by passing a law that temporarily abolished the national debt ceiling until 2025.
“Interest rates have shifted materially and structurally higher,” William Foster, a senior credit officer at International credit rating agency Moody’s, said in an interview with Bloomberg.
“This is the new environment for rates. Our expectation is that these higher rates and deficits around 6% of GDP for the next several years, and possibly higher, mean that debt affordability will continue to pressure the U.S.”
U.S. Credit Rating Downgraded To Negative
Moody’s has changed its outlook on the U.S. from “stable” to “negative,” citing massive fiscal deficits and a notable decline in debt affordability as major reasons for the move on Friday.
The downgrade follows a similar announcement by fellow credit rating agency Fitch, which raised concerns over the state of U.S. finances and the national debt burden when lowering its rating for the country earlier this year.
In its latest outlook, Moody’s did affirm the long-term issuer and senior unsecured ratings of the U.S. at AAA.
“Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” the agency said in a statement seen by Reuters.
According to Moody’s analysts, in the context of higher interest rates, and without effective fiscal policy measures to reduce government spending or increase revenues, U.S. fiscal deficits will remain large, significantly weakening debt affordability.
Fitch had maintained the highest U.S. credit rating since 1994, while S&P, another credit rating major, downgraded the country from AAA to AA+ back in 2011 amid a debt-limit crisis. Of the three main credit companies, Moody’s remains the only one with a top rating for the US.
U.S. Adds $500 Billion To Debt In Less Than A Month
U.S. national debt surged by more than $500 billion in just 20 days to reach $33.5 trillion, according to data provided by the U.S. Treasury Department last week.
On September 18, the Treasury reported that the amount of money borrowed by the federal government to cover operating expenses stood at $33.04 trillion. It took Washington three months to drive it from $32 trillion to the current level.
The debt ceiling, which was legally set at $31.4 trillion, was surpassed in January 2023.
The total output of the U.S. economy was only $25.46 trillion, meaning that the economy would have to grow by 33.5% to cover the national debt.
The White House has been pressing Congress to lift the limit. On June 3, President Joe Biden signed a bipartisan debt bill that allowed the limit to be lifted until January 2025, thus averting an economically disastrous default.
The deal on raising the debt limit was fiercely debated by Republicans and Democrats for weeks. The prolonged dispute over spending priorities put the measure’s approval at risk amid fears that the Republicans, who hold a majority in the House, would refuse to support the Fiscal Responsibility Act.
A default would have limited the government’s ability to borrow or pay its bills, possibly triggering financial havoc overseas, with a massive negative impact on prices and mortgage rates in other countries.