Higher interest rates are a tool utilized by the Federal Reserve to fight inflation. And while it may prove successful, it may also come at the cost of a constrained economy.
Many of the side effects of high interest rates are obvious—difficulty in borrowing means fewer Americans buying homes or starting businesses, for example—but there’s another side effect that is becoming dangerously clear: the growth of our government’s debt.
While businesses and consumers may be discouraged from borrowing when interest rates are high, government borrowing often persists. And since high interest rates mean larger payments on U.S. Treasurys, the amount of money owed by our government—on interest alone—is growing rapidly.
The U.S. national debt is growing at a pace of $1,000,000,000,000 ($1 trillion) every 100 days.
According to data from the U.S. Department of the Treasury, the size of the national debt has grown at a pace of one trillion dollars every 100 days since June 2023. As of January 4, 2024, the national debt of the United States stands at $34 trillion. Bank of America strategist Michael Hartnett believes there is no reason for this pace to slow and predicts the U.S. national debt will pass the $35 trillion mark in the same period of time, which would bring us to April 13, 2024.
A large portion of this debt comes from growing interest on our nation’s existing debts. As of March 12, 2024, interest costs have totaled $433 billion in fiscal 2024, according to Bloomberg. In the Biden administration’s proposed budget for fiscal year 2025, interest payments on U.S. debt will cost approximately $890 billion. A separate analysis by the Peter G. Peterson Foundation estimates that interest payments on U.S. debt will grow to more than 10 times that amount—$10.6 trillion—over the next decade.
Experts say out-of-control government debt could “break” financial markets.
The massive size of our nation’s debt creates both an increased risk of default and an increased risk that our government may be less able to provide financial assistance in the event of an economic emergency.
Joao Gomes, a finance professor at Wharton, says that concerns about these risks—and government debt in general—may eventually “break” markets as that debt continues to grow to uncomfortable heights.
Tangible assets like gold have been suggested as the best hedge against the potential consequences of record government debt.
Gold has historically grown—and been utilized as a financial hedge and store of wealth—in times of economic uncertainty and volatility. If our national debt continues to increase along with other factors like geopolitical conflict, 2024’s recent record highs may be a sign of more highs to come.
In a note about growing national debt published on February 29, 2024, Bank of America strategist Michael Hartnett wrote, “Little wonder ‘debt debasement’ trades [are] closing in on all-time highs,” citing gold’s then price of $2,077/oz. In the time since, gold climbed even higher, surpassing its previous record high price.
