US Debt Crisis Looms as Borrowing Interest Rates Surpass GDP Growth
The United States is on the verge of a critical financial milestone as its federal debt approaches alarming levels. The Congressional Budget Office (CBO) recently reported that the publicly held debt has reached $31 trillion, which equals approximately 100% of the nation’s Gross Domestic Product (GDP). Projections suggest that by 2030, this figure may exceed 106% and could escalate to 120% by 2036.
Impact of Rising Interest Rates on US Debt
One of the primary factors driving the accumulation of debt is the increasing cost of interest. CBO forecasts indicate that these annual costs could more than double, rising to approximately $2.1 trillion by 2036. This growth will take up a larger share of federal spending, further exacerbating existing budget deficits.
The yield on Treasury bonds, which the government issues to finance its debt, has been climbing due to a combination of previous Federal Reserve rate increases and concerns related to the U.S.’s reliability in global finance. Currently, the average interest rate on federal debt stands at 3.316%. However, the CBO predicts this will increase to 3.4% this year and may reach 3.9% by 2036.
Economic Growth Versus Debt Accumulation
The CBO’s updated findings show a slower economic growth trajectory, with nominal GDP growth projected to decrease from 4.1% in 2025 to 3.8% by 2027. According to the Committee for a Responsible Federal Budget (CRFB), this could indicate an approaching debt spiral, where interest rates surpass GDP growth—raising serious concerns about the sustainability of the fiscal outlook.
- 2025 GDP growth: 4.1%
- 2026 GDP growth: 3.9%
- 2027 GDP growth: 3.8%
- Projected debt by 2036: 120% of GDP
- Estimated interest costs in 2036: $2.1 trillion
Potential Legal Challenges and Economic Outlook
Lawmakers have expressed worries about the political ramifications of fiscal austerity. Some are counting on robust economic growth to help control U.S. debt long-term. However, the CBO warns that if interest costs rise faster than economic growth, significant measures may become necessary to avert a financial crisis.
The outlook could toughen further if ongoing legal challenges concerning tariffs enacted during the Trump administration result in unfavorable rulings. If the Supreme Court finds the tariffs illegal, deficits could balloon to $3.8 trillion by 2036, with the debt possibly soaring to 131% of GDP.
In a more optimistic scenario, advancements in artificial intelligence (AI) could enhance productivity and improve the debt landscape. CBO estimates AI could lead to a modest increase in total factor productivity growth.
For now, the ongoing trajectory of U.S. debt and interest rates illustrates the struggles policymakers face in managing fiscal responsibility amid economic uncertainties. As the situation evolves, it will be vital for officials to address the complexities of the debt crisis and its implications for future generations.
