Interest rate and national debt - how high can it go?

 

When the FED raise the fund rate, the interest burden of the government debt rises with it.

US national debt-to-GDP ratio has been over 100% for a few years now, it is 121.84% now and see no sign of easing. What does that mean? It means it is like a person spent 20% more than he makes!

The Congressional Budget Office (CBO) projected that annual net interest costs would total $399 billion in 2022 and nearly triple over the upcoming decade, soaring from $442 billion to $1.2 trillion and summing to $8.1 trillion over that period. CBO's projection was done in May when the 10 year treasury notes yield at 2.9%, it is 3.88% now!

https://www.pgpf.org/

Remember the US GDP in 2022 is $20 trillion. If as projected, majority of the federal revenue would be spent in the interest payment than anything else. This rate is not sustainable unless the government has other magics to reduce the budget deficit drastically. The budget deficit reduction needs to be faster than the interest compounding.

Also in the private sector, business relies on cheap (if not zero) borrowing cost would face severe challenge. Last time, government bailed them out. This time, the government is in no better shape and may not be able to help much. When more and more companies get into trouble in 2023, it could be cascading like snowball. I predict the federal fund rate would have to come down at that point.