The U.S. Treasury reported Tuesday that the nation’s debt topped $31 trillion for the first time ever, just as the cost of borrowing money has gotten more expensive because of rising interest rates.
At the beginning of March 2020, as the severity of the COVID-19 pandemic was about to become clear, the national debt stood at $23.4 trillion. In two-and-a-half years, the debt has gone up by $7.6 trillion.
Big spending by the federal government during the pandemic pushed budget deficits higher in 2020 and 2021, with the national deficit hitting $3.1 trillion in 2020 and $2.8 trillion in 2021. This year’s deficit is expected to be lower. As of August 2022, the eleventh month of the fiscal year, the deficit stood at $944 billion, making it likely the deficit will be just over $1 trillion for 2022.
The Biden administration has taken credit for the lower deficit, with President Joe Biden saying earlier this week that “even with some student loan forgiveness and all the cost of all these things, we’re still on track to reduce the federal deficit this year by more than $1 trillion.”
However, most of the cost of student loan debt relief is expected to hit the 2023 budget, and along with the rising cost of entitlement programs like Medicare and Social Security, and new government spending on Ukraine’s fight against Russia, the deficit is expected to grow next year.
Meanwhile, the Federal Reserve continues to raise interest rates as it tries to tackle inflation, which has remained stubbornly high on items like food and energy. Higher interest rates make it more expensive for the federal government to borrow money, so the cost of servicing the debt will rise, which could also lead to a higher deficit next year.
Rising interest rates could also push the country into a recession, which could lead to declining tax revenues.
Brian Riedl, a senior fellow at the Manhattan Institute, told the New York Times that adding new debt while interest rates are going up was unwise.
“Basically, Washington has engaged in a long-term debt spree and been fortunate to be bailed out by low interest rates up to this point,” Mr. Riedl said. “But the Treasury never locked in those low rates long term, and now rising rates may collide with that escalating debt with horribly expensive results.”
The Congressional Budget Office released a report earlier this year that warned about long-term deficits and how they are pushing the national debt to grow relative to the size of the economy. By 2032, the debt is projected to grow to 110% of gross domestic product, the report says.