America's Huge Pile of National Debt Makes Combating Inflation More Difficult

The federal government was already more than $23 trillion in debt in early 2020, but it has borrowed about $6 trillion more since then-much of it to fund pandemic-era stimulus bills.

Pandemic-era debt isn't the main cause of the debt tsunami that's threatening to wash over the government in the next few decades-Social Security, Medicare, Medicaid, and decades of spending more than the government takes in are the real culprits-but so much borrowing in so short a period of time has heightened the stakes.

That's standard-issue monetary policy and basic macroeconomics, but America's high levels of debt make the maneuver more fraught because higher interest rates will reverberate through the government's own debt.

The already-huge national debt makes it more difficult to combat inflation-inflation that has been triggered, at least in part, by debt-financed spending.

While the overall amount of debt matters too, the more important consideration here is how much the federal government spends each year to make interest payments on the debt.

"The interest cost of the national debt in 2008 was $253 billion and remained at about that level through 2015," he writes, even though the overall amount of debt doubled in those years.

The Congressional Budget Office's long-term budget outlook, which serves as a baseline for projections regarding future debt costs and other budgetary matters, assumes that interest on the national debt will rise to 8.6 percent of gross domestic product by 2051-that's about $1.9 trillion in today's dollars.

https://reason.com/2021/12/30/americas-huge-pile-of-national-debt-makes-combating-inflation-more-difficult/