An overlooked feature of the explosion in U.S. deficits and debt that’s belatedly grabbing the attention of voters, politicians, and the media: The average American household’s share of federal borrowings is now equal to half the median price of their homes, and the figure is rising fast. Right now, teachers, nurses, store owners, and IT workers (i.e., average Americans) aren’t paying any of the interest on those tens of trillions, since the federal government is simply ramping the IOUs to cover the carrying costs. But that can’t go on forever. America is rapidly reaching the outer limits for the size of budget shortfalls, and the debt burden they amass. “There is a point where the bond markets will no longer be willing to lend Washington the unsustainable amounts it needs to keep financing its debt,” says Jessica Riedl, a senior tax and budget fellow at the Brookings Institution. “At some point, something has to give, and the solution has to be big tax hikes, inflation [itself a hidden form of tax increase], or spending cuts.”
The sea change in U.S. borrowing—from historically high but stable, to gigantic, fast-rising, and alarming—is mainly a post-COVID phenomenon. From the start of 2013 through the close of 2019, the ratio of debt to GDP basically flatlined at around 75%. In other words, what the U.S. owed bondholders and the amount the nation produced in goods and services were rising at about the same rate. After the crisis passed, the U.S. kept spending at far above pre-pandemic norms, creating the growing structural gulf between revenues and expenditures before interest expense, or what’s called the “primary deficit.” The rapid escalation in rates on Treasuries deployed to finance those gaps—the two-year T-bill now yields 3.6%, 16 times its 22 basis point rate in mid-2021—worked in tandem alongside the budget shortfalls to triple interest payments from $352 billion in FY 2021 to $970 billion in FY 2025, putting the debt train on an accelerated track.
