As the US Treasury Runs Out of Creditors, Its Options Dwindle

By Jonathan Newman – November 29, 2023

Are the chickens coming home to roost for the US Treasury? As Ryan McMaken noted in a recent Mises Wire article, the United States is in a debt spiral and there’s no easy way out.

The problem is multifaceted, but the origin is profligate government spending. While it typically spikes during crises, spending is increasing at an alarming rate even outside of crisis periods. And tax revenues are not keeping up, which means ever-deepening deficits. Government expenditures spiked during the 2020 crisis, but even ignoring those spikes, annual spending has increased by about $1.6 trillion since 2019, while tax receipts have only increased by about $600 billion.

The government must borrow to make up the difference, which has led to a mountain of debt. Total public debt has ballooned to over $32 trillion, which is over 180 percent of gross domestic product (GDP), excluding government spending and transfers.

Due to the unpopularity of price inflation and the inexorable tendency for the market to reestablish interest rates that accord with people’s real time preferences, the Fed has allowed interest rates to rise. This, combined with the sheer size of the debt has caused the government’s interest payments to increase to unprecedented heights. In 2020, interest payments were a little over $500 billion, but they have almost doubled since then.

Congressional Budget Office projections show that these interest payments will take up ever-larger portions of the federal budget, causing deficits to sink even further. The government will have to use more debt to pay off past debts.

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