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<\/p>\nReal interest rates on federal debt averaged just 0.9% over the past 15 years, while real GDP growth averaged 2.2%. That buffer is now evaporating, according to the CRFB.\u200b<\/p>\n
Since 2023, most newly issued Treasury debt has carried yields between 4% and 5%\u2014rates that exceed the economy\u2019s long-term expected growth rate. As older, cheaper debt matures and gets rolled over at these higher rates, the average interest cost on the entire federal debt stock is creeping upward. CBO now projects that by 2031, both R and G will hit roughly 3.8% nominally\u2014and then diverge, with R pulling ahead.\u200b<\/p>\n
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The spiral mechanism<\/p>\n
The CRFB describes what comes next as a self-reinforcing feedback loop. Higher debt pushes interest rates up and slows economic growth. Slower growth reduces tax revenues. Reduced revenues widen deficits. Wider deficits add more debt. More debt pushes rates higher still. \u201cOver time,\u201d the group warns, \u201cthis could lead to accelerating growth in the debt, which could eventually be too rapid to correct, absent a major disruption or crisis.\u201d\u200b<\/p>\n
Even CBO\u2019s relatively optimistic \u201cbaseline\u201d scenario\u2014which does not model additional tax cuts or spending increases\u2014projects the national debt will balloon to an unprecedented\u00a0175% of GDP by 2056<\/a>. By that year, CBO estimates the interest rate will reach 4.2%, against a GDP growth rate of just 3.5%\u2014a gap of 0.7 percentage points. Closing that gap alone, the CRFB calculates, would require roughly\u00a0$2.7 trillion\u00a0in annual spending cuts or tax increases\u2014in 2056 alone.\u200b<\/p>\n The political wildcard<\/p>\n The CRFB\u2019s warning carries an implicit rebuke of Washington\u2019s current fiscal trajectory. If lawmakers continue enacting tax cuts and spending increases\u2014as they did in the One Big Beautiful Bill Act, which CBO estimates will add $4.7 trillion to deficits through 2035\u2014the spiral \u201ccould arrive sooner and with greater intensity than projected.\u201d\u200b<\/p>\n The national debt is expected to cross $39 trillion within days, up more than $2.6 trillion in the past year alone. But as the CRFB makes clear, the real danger isn\u2019t the next trillion. It\u2019s the arithmetic of what happens when a country can no longer grow its way out of its debt\u2014and the window to act before that moment closes in just five years.<\/p>\n