WASHINGTON: The United States government\u2019s debt interest burden reached a record high for fiscal 2026, eating up a growing share of federal revenue and risking a snowballing of borrowing that can likely leave the country more vulnerable to economic shocks.<\/p>\n
For the year through September, net interest costs came to US$1.05 trillion, up more than 8% from the US$970bil in fiscal 2025, Treasury Department data showed last Friday.<\/p>\n
The Peter G. Peterson Foundation, a research group, sees the costs reaching 3.2% of gross domestic product (GDP), surpassing the previous record, reached in 1991. GDP figures for last quarter are due later this month.<\/p>\n
The increase reflects both that there\u2019s a lot more debt to pay interest on \u2013 one key measure exceeds US$32 trillion, some US$10 trillion more than just five years ago \u2013 but also much higher interest rates.<\/p>\n
The average rate the government paid on marketable Treasuries was 3.52% at the end of September, more than double the 1.47% five years before.<\/p>\n
What\u2019s worse is that current yields are even higher, with the current gauge from Bloomberg\u2019s US Treasuries index now around 5%.<\/p>\n
The rise in rates has prompted Treasury secretary Scott Bessent (pic) into extraordinary steps to contain the move, though economists argue the nation remains distant from crisis.<\/p>\n
Demand at debt auctions has proved solid, and higher borrowing costs aren\u2019t hindering credit flows.<\/p>\n
\u201cIt doesn\u2019t seem like a crisis \u2013 it\u2019s kind of a slow eating away\u201d of fiscal capacity, said Louise Sheiner, a senior fellow at the Brookings Institution and former economist at the Federal Reserve.<\/p>\n
What\u2019s unknown is the point at which \u201csome lenders are going to decide not to lend to us \u2013 and if that happens, that could lead to a fiscal crisis,\u201d with the Treasury losing access to raise money from markets, she said.<\/p>\n
Gennadiy Goldberg, head of US interest rates strategy at TD Securities, said one thing staving off deeper concerns for now is that the nation\u2019s nominal GDP growth rate \u2013 which is key for things like corporate revenues and tax receipts – is higher than US Treasury yields.<\/p>\n
The nominal year-on-year GDP gain for the second quarter was 6.3%. \u201cA fiscal apocalypse is not upon us just yet,\u201d Goldberg wrote in a recent note.<\/p>\n
Managing, for now<\/p>\n
\u201cSomehow we\u2019re managing, even with interest rates going up,\u201d Congressional Budget Office director Phillip Swagel said in an Oct 8 event in Minneapolis.<\/p>\n
At the same time, he cautioned that deteriorating fiscal dynamics do leave the nation increasingly prone.<\/p>\n
\u201cAnytime there\u2019s a negative shock, interest rates rise for whatever reason\u201d there can be a \u201cturbocharger effect.\u201d<\/p>\n
In that scenario, the shock of higher rates \u201cfeeds into the deficit, feeds into the debt, feeds back into interest rates to the economy,\u201d said Swagel, whose agency in February projected that the debt-to-GDP ratio will hit a record surpassing 106% in 2030.<\/p>\n
The former Treasury official also said that, while he\u2019s been delivering the same fiscal message for a long while, the past two years, market participants have been more interested.<\/p>\n
Interest costs are now one of the top three biggest item on the list of federal outlays, after having more than doubled since just 2022.<\/p>\n
It\u2019s only exceeded by Social Security and Medicare, the giant federal programmes for older Americans, whose costs escalate each year as beneficiary rolls climb by the million.<\/p>\n
The Defence Department and Medicaid round out the top five.<\/p>\n
The last time interest costs as a share of the debt were around current levels, American politics girded to address the challenge. President George H.W. Bush famously reneged on his no-new-taxes pledge by signing a package of increases in 1990, just before the interest-cost ratio peaked.<\/p>\n
His successor Bill Clinton went on to boost levies further in 1993.<\/p>\n
Waiting on catastrophe?<\/p>\n
The end of the Cold War also saw a slump in spending on defence, bolstering the fiscal picture. By the late 1990s, a pickup in economic growth amid the diffusion of the Internet and personal computing was propelling revenues.<\/p>\n
Today, Bessent and other Trump administration officials have been touting the artificial intelligence boom as a growth stimulus that will help bring down the debt ratio.<\/p>\n
Budget experts, however, are sceptical. Spending on defence and entitlement programmes appears set to keep climbing, while GDP gains aren\u2019t likely to be fast enough to stoke revenues sufficiently, they say.<\/p>\n
\u201cThe problems only getting worse, so we shouldn\u2019t be debating whether to wait for the catastrophe \u2013 we should be working on it now,\u201d Brett Loper, executive vice-president of policy at the Peterson Foundation.<\/p>\n
\u201cIt\u2019s going to be really hard to climb out of this problem.\u201d<\/p>\n
This year\u2019s increase in net interest payments, at US$81.4bil, could be dwarfed if rates keep rising.<\/p>\n
The Fed is expected to hike its overnight benchmark rate \u2013 currently at 3.75% to 4% \u2013 at least once more, which would drive up the costs of the short-term debt Bessent has increasingly favoured.<\/p>\n
A 100 basis-point rise across the yield curve would drive up 2027 interest costs by US$310bil, according to calculations by TD Securities.<\/p>\n
\u201cI don\u2019t think a fiscal crisis is imminent, we still have a pretty strong economy,\u201d said Karen Dynan, a Harvard University economics professor who served at the Treasury in the Obama administration. And rates still aren\u2019t back to levels from three or four decades ago, she noted.<\/p>\n
At the same time, \u201cwith debt so high, net interest payments really matter – they will lead to a snowballing of debt,\u201d she said.<\/p>\n
\u201cThe increase in interest rates and in interest payments relative to GDP, that may bring public pressure for action.\u201d \u2014 Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"WASHINGTON: The United States government\u2019s debt interest burden reached a record high for fiscal 2026, eating up a…\n","protected":false},"author":2,"featured_media":650707,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[114,1575,184,85,6203,46,17745],"class_list":["post-650706","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-debt","tag-economy","tag-il","tag-interest","tag-israel","tag-treasury"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/650706","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=650706"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/650706\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/650707"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=650706"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=650706"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=650706"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}