The U.S. owes $31 trillion in debt.

There will be another federal showdown after two decades of tax cuts, recession responses, and bipartisan spending contributed $25 trillion to the total.

According to an October treasury report, America’s gross national debt reached $31 trillion for the first time. In December, the figure increased to $31.3 trillion.
If you find that difficult to comprehend, the Peter G. Peterson Foundation estimates that each person in the country is in debt $93,878.
And, given the recent sharp spike in interest rates — the Fed funds rate objective is now between 4.25% and 4.50% — the national debt will be expanding at a rate that makes it much more difficult to ignore.

“Interest rates are a huge issue,” says Phillip Braun, clinical professor of finance at the Kellogg School of Management at North Western University.

“The Treasury finances the debt with a lot of short-term borrowing … It’ll push other budgetary items out.”

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The Way the U.S. Accumulated $31 Trillion in Debt (1)

Expenses have been high in recent years

A deficit occurs when the government spends more money in a fiscal year than it receives in taxes — and the last few of years have been costly.
Since the beginning of the epidemic, several significant measures with hefty price tags have been adopted, including the American Rescue Plan Act, which cost $1.9 trillion, and $750 billion for student loan relief, all of which increase to the deficit, which then adds to the debt.

And, while the Inflation Reduction Act, passed in August, is expected to cut the deficit by $240 billion, the Biden administration’s policies and initiatives are expected to add trillions more over the following decade.
The Committee for a Responsible Federal Budget, a non-profit organization that studies federal budget and fiscal concerns, projects that the deficit will increase by $4.8 trillion by 2031.

Excessive borrowing will result in sustained inflationary pressures, a new record national debt as early as 2030, and a tripling of federal interest payments over the following decade — or even sooner if interest rates rise faster or by more than forecast,” according to the CRFB.

Much of the borrowing in recent years occurred while interest rates were historically low; now that they are not, and inflation is growing at the fastest pace in decades, the cost of this debt will be exacerbated.
“Having the government debt be 1.2 times the size of the economy is not healthy,” Braun argues. “And it really surged up because of the pandemic. However, it has been rising since the Great Recession.”

Every day, more than $965 million is paid on interest on the national debt. According to the Peter G. Peterson Foundation, this will triple in the next decade, making it the fastest-growing item in the federal budget.
When the government owes a lot of money, it makes it more difficult for firms to borrow money.
“The federal debt squeezes out other debts in the economy,” adds Braun. “The economy only has so much money. As a result of the government borrowing such enormous sums, there is only so much money that people are prepared to lend in the economy overall, thus it pushes out other sorts of borrowing.”

He claims that the government could have refinanced its debt while interest rates were low, but it did not.
“Which means borrowing rates today and in the future are unnecessarily higher as a result,” Braun says.

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