As I have mentioned before, if (really when) interest rates return to the historical norms in the US, the money spent to service the debt will crowd out the discretionary budget. What is the discretionary budget? Basically everything except for Social Security and Medicare.
Also note that inflation can be price inflation or monetary inflation. As seen below, what we have now is monetary inflation- caused by monetary (fiscal) policy.
America's Huge Pile of National Debt Makes Combating Inflation More Difficult
Raise your hands if you believe this will happen.The optimistic scenario goes like this. America shakes off what remains of the pandemic in the coming months without the need for trillions in additional borrowing, Congress doesn't pass any more deficit-busting spending plans while also allowing the 2017 tax cuts to expire in 2025 as planned, and the economy performs consistently well for the next, oh, three decades as we dodge recessions, wars, climate issues, and anything else the world might throw our way.
Under that set of circumstances, the national debt will merely be twice the size of the entire U.S. economy by the middle of this century.
Read the rest of the article at the link.With inflation running at a 40-year high, the Federal Reserve has indicated that it will consider raising interest rates early next year. 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.
"Fiscal policy has hamstrung the Federal Reserve," says Brian Riedl, a senior fellow at the Manhattan Institute and a former Senate budget staffer. "For the Federal Reserve to do basic, commonsense macroeconomic stabilization, it's going to hit the national debt hard because Congress has been so irresponsible."
In a new report, Riedl outlines the fiscal and monetary trap facing federal policy makers and central bankers. In short: Rising interest rates will make the national debt a bigger problem. And 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.
Source: Manhattan Institute, Brian Riedl: https://www.manhattan-institute.org/...al-debt-crisis
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. As Bruce Yandle, an economist at the Mercatus Center, explained last month (and again in the current issue of Reason), a combination of falling interest rates and low inflation allowed the government to stock up on debt without facing higher annual costs for much of the past two decades. "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.
In effect, a decade of low inflation and low interest rates taught politicians that there was no immediate budgetary reason to limit borrowing. The long-term risk of massive debt was always there, but politicians are nothing if not good at ignoring problems that won't metastasize until they are out of office.