The fiscal day of reckoning may be close at hand for the United States:
According to the U.S. Treasury Department’s Office of Debt Management, the U.S. government is just five years away from the point where every new dollar it borrows from the public will go toward funding interest payments on the national debt.
That is the main takeaway from the Debt Management Office’s Fiscal Year 2019 Q1 Report, which featured the Office of Management and Budget’s latest projection of the U.S. government’s borrowing from the public…
Net interest on the national debt has become one of the fastest growing segments of federal spending. When the national debt reaches the point where all newly borrowed dollars must be used to pay this mandatory expenditure, the U.S. government will have passed the event horizon that marks the boundary of the national debt death spiral.
Cities and territories in the United States that have crossed that crisis point have either gone through bankruptcy proceedings or their equivalent, or they have implemented major fiscal reforms that reversed their fiscal deterioration, wherein the best-case scenarios, they acted to restrain the growth of their previously out-of-control spending to restore their fiscal health.
Interest on the national debt is going up quickly for two reasons. Obviously, the government continues to spend waaaaaaaaay more than they squeeze out of the economy (us) through taxation, adding to the total amount it owes. More importantly, however, the many record deficits recorded over the past 10 years were done so at historically low interest rates (engineered by the Federal Reserve, which in the process robbed productive citizens of some of the proceeds they would normally have earned through their savings). Inevitably, those rates have begun to climb again. It may seem incremental on a chart, but keep in mind that just one percent of $22 trillion is $220 billion.