Submitted by Taps Coogan on the 9th of January 2019 to The Sounding Line.
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Until now, the largest increase in the interest on the US national debt, relative to GDP, occurred in 1981 when it rose from 1.83% of GDP to 2.14% of GDP in a single year, a 0.39% increase relative to GDP. At the time, inflation in the US was soaring at over 10% and concerns about large deficits (for the era) were widespread.
Assuming that the US economy grows by roughly 2% in 2020, the interest expense will rocket from 1.79% in 2019 to 2.25%, a 0.46% increase, the largest increase on record for a single year.
The US federal government paid over $375 billion of interest on the national debt in 2019 and will pay roughly $479 billion in 2020. The CBO forecasts that the interest expense will reach roughly 4% by 2035, at which point it will be the largest non-entitlement spending item in the US.
The national debt was barely 30% of GDP in the early 1980s and the US ran a budget deficit in excess of 5% of GDP just once during the decade. Today, the national debt is over 106% of GDP and the deficit is likely to remain at least 5% of GDP every year for the foreseeable future. The fact that the interest on the national debt isn’t already radically higher is a ‘miracle’ of low interest rates and inflation. It is something to keep in mind as the Federal Reserve constantly bemoans a ‘persistent and worrying lack of inflation.’
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