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U.S. National Debt Tops $31 Trillion for First Time

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America’s borrowing binge has long been viewed as sustainable because of historically low interest rates. But as rates rise, the nation’s fiscal woes are getting worse.


The breach of the threshold, which was revealed in a Treasury Department report, comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. While record levels of government borrowing to fight the pandemic and finance tax cuts were once seen by some policymakers as affordable, those higher rates are making America’s debts more costly over time.

The $31 trillion threshold also poses a political problem for President Biden, who has pledged to put the United States on a more sustainable fiscal path and reduce federal budget deficits by $1 trillion over a decade. Deficits occur when the government spends more money than it takes in through tax revenue.

“The deficit path is almost certainly too high,” given the rise in rates in recent weeks, Mr. Furman added. “We were sort of at the edge of ‘OK’ before, and we are past ‘OK’ now.”

Critics of the Biden administration’s spending initiatives have warned that a reliance on low interest rates to justify expansionary policies could come back to bite the United States economy, as the debt burden mounts.

Brian Riedl, a senior fellow at the Manhattan Institute, said the United States was unwise to make long-term debt commitments based on short-term, adjustable interest rates. Adding new debt, he said, as interest rates rise would be pouring fuel on a fiscal fire.
“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.”
 
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