The United States economy is in the early stages of a deficit doom loop caused by rapidly rising interest payments to service the federal debt, which stands today at 100% of GDP. At this level, every 1% increase in interest rates raises federal spending to service the debt by an additional 1% of GDP. Today, interest payments on the deficit are the fastest-growing part of federal spending. Servicing the debt costs the country over 3% of GDP or $1 trillion per year. This is not sustainable.
In spite of the efforts of the Department of Government Efficiency and the tariffs of President Donald Trump, the deficit continues to devour GDP. The nonpartisan Congressional Budget Office reported this week that the annualized federal deficit is running at about 6.7% of GDP, exceeding last year’s deficit of 6.1% at this same point last year. Spending cuts alone will not solve the problem. Americans hate paying taxes but strongly favor keeping the cost-ballooning Social Security, Medicare, and Medicaid unchanged.
