America's headed for an interest payment crisis

America's headed for an interest payment crisis, per Newsweek.

Read full article: https://www.newsweek.com/americas-interest-payment-crisis-national-debt-rise-33-trillion-economy-challenges-1838011#:~:text=A%20Closer%20Look%20at%20the%20Figures&text=America%20paid%20a%20whopping%20%24659,and%20Federal%20Reserve%20rate%20hikes.

In the fiscal year, the United States found itself grappling with a staggering interest payment, reaching a considerable $659 billion, nearly doubling the $352 billion paid the previous year, as revealed by a Treasury report released on Friday. The complex journey leading to this substantial sum can be traced back to a combination of fiscal imbalances and the Federal Reserve's decisions to raise interest rates.

For a more comprehensive understanding, the Wharton's Budget Model team delves into the details. As of the conclusion of the last month, the widely reported "public outstanding debt" figure stood at $33.2 trillion, with "debt held by the public" amounting to $26.3 trillion, approximately 98 percent of the projected gross domestic product.

Setting aside the ongoing debates about the debt ceiling and imminent government shutdowns, Wharton's estimation is that the debt held by the public should not exceed 200 percent of the GDP. The U.S. is granted a 20-year window to implement corrective measures before an eventual default becomes inevitable.

Beyond the numerical implications, there is a consideration of missed opportunities. The Committee for a Responsible Federal Budget draws attention to the fact that the United States now allocates more funds to debt interest payments than to crucial programs benefiting children, such as education.

Earlier in the month, Republican Presidential hopeful Vivek Ramaswamy suggested that the U.S. would be in surplus had the government followed investment strategies akin to those recommended by financial advisors, hinting at a missed opportunity by the Federal government.

The challenges of foreseeing the future trajectory of the U.S. government's debt become apparent in the report by the Wharton team. While their primary tool, the Dynamic Overlapping-Generations Model, has been extensively used, it has its limitations. Forecasting long-term macroeconomic patterns under existing fiscal policies can prove challenging, leading to the introduction of the "closure rule."

Furthermore, the Wharton team introduced a more advanced model to offer a more confident analysis of debt and its intricate relationship with financial markets.

As government debt continues to soar, financial markets are inevitably inclined to demand higher interest rates. Should markets anticipate uncontrollable debt surges, they might advocate for even steeper returns, creating a perilous cycle of escalating borrowing costs and accelerated debt growth.

Unchecked, the burgeoning debt could evolve into a formidable economic obstacle. However, some posit that surging interest rates might compel a reevaluation of national policies. With borrowing becoming more expensive, investments could shift towards more lucrative assets, potentially steering the nation towards more prosperous trajectories.

The U.S. national debt, coupled with the challenges posed by interest payments, transcends mere figures on a ledger. They signify a potential future fraught with economic hurdles, underscored by the fact that, theoretically, each American taxpayer owes $98,460 as of the end of the last fiscal year.