Kerby Anderson

A week ago, I talked about entitlement spending and the impact it would have in the future, unless Congress was willing to modify the trajectory of Social Security and Medicare. Entitlement spending is a major contributor to the increasing federal debt.

Are we headed toward a debt crisis? The US national debt now exceeds $31.5 trillion. We must service the interest on that debt. When President Joe Biden took office, the annual interest payments were $549 billion. According to the Federal Reserve, the annualized interest payments are now $853 billion. That is about the same as the entire defense budget for one year.

The problem gets worse when you realize that the government needs to borrow to keep up with the interest payments. But interest rates are rising, and fewer holders (like major countries) want to purchase treasuries. In fact, many of the major holders are currently shrinking their holdings. For the last year, the Federal Reserve has been saying it will not buy more treasuries.

As interest on the debt takes up more and more of the federal budget, the government must borrow even more to make up the difference. And this will lead to even higher interest rates, which lead to higher interest payments, and that requires more borrowing.

Also, the cost of entitlements is growing because more and more baby boomers are retiring. Medicare costs increase because the price of drugs, doctors, and hospitals keeps increasing. Social Security costs rise because payments are indexed to inflation.

Economists have been talking about a global debt crisis, and it is likely that currencies in other countries will fail. But sometime soon the US will face its own debt crisis unless Congress is willing to act.