“Biden’s administration did nothing to bring about the deficit’s decline. Credit really goes to large increases in tax revenues as the economy rebounded combined with the decision by Sens. Kyrsten Sinema (D–Ariz.) and Joe Manchin (D–W.Va.) and their Republican colleagues to block Biden’s expensive “Build Back Better” proposal. BBB would have made permanent many of the emergency programs created or expanded during the pandemic, and had it passed, government spending and deficits would be heading even higher than they are today.
That said, the still-too-close-to-$1 trillion deficit for FY 2022 is inexcusably large. More worrisome is the cost that we taxpayers must shoulder because of the pre- and post-COVID-19 deficits. According to that same Treasury report, in May, the U.S. government paid $56 billion in interest payments on its debt, up from $44 billion in April. As of now, total interest payments for this year are $311 billion. With four months still to go on this figure, we can assume a total interest cost for FY 2022 of at least $500 billion.
This is just the beginning. Before the pandemic and the inflation unleashed by irresponsible government spending and easy money, the Congressional Budget Office projected that in 2050, interest payments on U.S. debt would consume 8 percent of GDP and 40 percent of government revenue. These projections assumed modest increases in interest rates over a long-term period. However, as of today, the short-term figures look optimistic as inflation and the Federal Reserve’s response to it are boosting interest rates.”
“It’s expensive for sure, but it is also a vicious cycle if the interest is paid for with yet more borrowing. More borrowing raises total interest payments. In addition, if one believes (as I do) that most of our current inflation is rooted in recent fiscal irresponsibility, then more borrowing to pay for more interest will only add more fuel to the inflation fire.
Finally, as the average interest rate on marketable debt approaches 2 percent, we are getting close to the threshold that some left-leaning economists say should trigger concerns about the size of government debt.”
“the budget deficit might be smaller than at the height of the pandemic, and that is a good and predictable thing. But it’s no cause for celebration as interest rates and servicing costs could push us into worrisome territory sooner than we think.”