US debt repayments overtake defence spending

Interest payments on America’s national debt have overtaken its defence and Medicare budgets for the current financial year, as a result of two related phenomena. $5 trillion in pandemic stimulus plus recent behemoth spending bills have been funded almost entirely with borrowing. The Fed has meanwhile raised interest rates to slow inflation caused by Covid disruption and the subsequent stimulus. The US is expected to spend 3.1 per cent of GDP on interest this year – up from 1.6 per cent in 2020. And it’s not getting better. A projection from the Committee for a Responsible Federal Budget put interest payments at $1.8 trillion per year by 2034. At 4.4 per cent of GDP, that would put the US on a par with countries like El Salvador, Namibia… and the UK.