Name: Record-High Interest Payments Could Make the National Debt Matter
Uploaded: 2024-02-20T10:30:00Z
Duration: 3 min 11 s
Description: The U.S. is projected to spend a historic $870 billion in interest on the national debt this year. That’s even more than the defense budget. WSJ’s Dion Rabouin explains why these interest payments keep growing and what it could mean for markets and regular taxpayers. Photo illustration: Noah Friedman/Storyblocks

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The U.S. is projected to spend a historic $870 billion in interest on the national debt this year. That’s even more than the defense budget. WSJ’s Dion Rabouin explains why these interest payments keep growing and what it could mean for markets and regular taxpayers. Photo illustration: Noah Friedman/Storyblocks

https://m.wsj.net/video/20240216/f908fc15-e356-46ca-9edd-40cd5e301eaf/2/hls/manifest-hd-wifi.m3u8

Record-High Interest Payments Could Make the National Debt Matter

Interest payments on the US national debt are on pace to hit record levels. For 2024, the Congressional Budget Office estimates the United States will spend $870 billion, not on the debt itself, but on making interest payments on the debt. The CBO's latest projections show interest payments on the national debt over the next 10 years will total more than $12 trillion. That's the highest dollar amount in any 10-year period, and it's more than double the total spent in the past two decades. I'm gonna explain just how much interest payments are going to cost, how much of the US budget they will account for, and why the debt could start to matter to the market and to everyday Americans. Let's get into it. Over the next decade, the CBO estimates that the US government's interest payments on the national debt will total $12.4 trillion. That's more than the actual national debt was as recently as 2009. The amount that the government is paying for interest has risen by more than 35% each of the past two years, and payments are projected to increase by 32% this year. The big increases are the product of a widening budget deficit, meaning the US is consistently spending more than it's bringing in. We did a breakdown in October of why the US deficit has gotten so much wider in recent years. Check out that video for a deeper explanation. The $870 billion the US is expected to spend paying interest on the debt this year is historic. For this fiscal year, the US is projected to spend more on the interest for the national debt than what it spends on defense. That's significant when you consider that the US spends more on defense than any other country in the world. In fact, the US spent more on defense in 2022 than China, Russia, India, and the rest of the next 10 biggest defense spenders in the world combined. The government is also projected to spend more on interest payments this year than on everything from transportation to education, housing, social service programs, and science and environmental organizations. There's been a lot of talk about the US budget deficit, but even with the national debt reaching $34 trillion, there hasn't been much of a noticeable impact. The stock market has reached new record highs in 2024, and the US Treasury market is still functioning smoothly, but the rising cost of making interest payments could be a difference maker. Interest payments are expected to be the third largest government expenditure this year, trailing only Medicare and Social Security. Since the US can't not pay the interest on its debt without defaulting, this could mean the government cuts spending programs or removes tax cuts that have helped boost the economy and the market. Republicans in Congress have proposed trillions of dollars in cuts as recently as September, and Jared Bernstein, chair of the Council of Economic Advisors said recently on WSJ's "Take on the Week" podcast that the Biden administration sees the rising debt as a problem.

Jared: Well, when you're in a, what do they say? When you're in a hole, stop digging.

Bernstein also told me that the administration is looking for ways to reduce the deficit. The national debt hasn't been much of a factor for markets in recent years, but with the potentially record high cost of paying for that debt, things could change.

Dion Rabouin breaks down all things finance, taking a deep dive into what’s making money move and why it matters.