Cost of servicing the debt will hit $800 billion by 2025

The U.S. has gotten something of a free ride over the last 7 years as interest rates have hovered near zero.  This has meant that the cost of servicing the debt – paying off some bonds and rolling others over – has been relatively low.  This coming fiscal year, it's expected that the government will spend around $200 billion to keep the U.S. afloat.

But the free ride is about to end.  The Federal Reserve announced an end to their bond-buying program known as quantitative easing, and the resulting rise in interest rates will mean rising costs to service the debt.

By 2025, those costs are expected to be $800 billion – more than we spend on defense and non-defense discretionary spending put together.  And if interest rates rise more than expected, the costs could be close to a trillion dollars a year just to keep our heads above water.

Wall Street Journal:

The U.S. has come a long way since the days of trillion-dollar deficits, just a few years ago. The White House projects 2016 will have the smallest budget deficit in eight years. Yet the budgetary impact of the debt that’s been accumulated–$18 trillion in total, $13 trillion of that owed to the public–will reassert itself.

Currently, the government’s interest costs are around $200 billion a year, a sum that’s low due to the era of low interest rates. Forecasters at the White House and Congressional Budget Office believe interest rates will gradually rise, and when that happens, the interest costs of the U.S. government are set to soar, from just over $200 billion to nearly $800 billion a year by decade’s end.

By 2021, the government will be spending more on interest than on all national defense. according to White House forecasts. And one year later, interest costs will exceed nondefense discretionary spending–essentially every other domestic and international government program funded annually through congressional appropriations. (The largest part of the budget is, and will remain, the mandatory spending programs of Social Security, Medicare and Medicaid. Mandatory spending is over $2 trillion and is set to double to $4 trillion by 2025.)

By that time, the Obama administration will be just a painful memory.  But the cost of his legacy of debt will crowd out spending for vital defense programs and funding for important government agencies.

That $800 billion in debt servicing represents the entire federal budget for fiscal year 1985.  No one could have imagined 30 years ago a Congress and a president so irresponsible that servicing the debt would eventually cost as much as it took to run the entire government.

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