US surpasses $31tn in national debt for first time

Economists argue rising interest rates will make debt more costly

US President Joe Biden has highlighted efforts his administration has made to reduce US deficit, but economists say there is reason to be concerned. EPA
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The gross national debt of the US has surpassed $31 trillion, according to a Treasury report that logs the country's daily finances.

Edging closer to the statutory ceiling of roughly $31.4tn — an artificial cap Congress placed on the US government’s ability to borrow — the debt numbers hit an already tenuous economy facing high inflation, rising interest rates and a strong US dollar.

And while President Joe Biden has touted his administration's deficit reduction efforts this year and recently signed the so-called Inflation Reduction Act, which attempts to tame 40-year high price increases caused by a variety of economic factors, economists say the latest debt numbers are a cause for concern.

Owen Zidar, an economist at Princeton University, said rising interest rates will exacerbate the nation's growing debt issues and make the debt itself more costly. The US Federal Reserve has raised rates several times this year in an effort to combat inflation.

Mr Zidar said the debt “should encourage us to consider some tax policies that almost passed through the legislative process but didn't get enough support,” like imposing higher taxes on the wealthy and closing the carried interest loophole, which allows money managers to treat their income as capital gains.

“I think the point here is if you weren't worried before about the debt before, you should be — and if you were worried before, you should be even more worried,” Mr Zidar said.

The Congressional Budget Office earlier this year released a report on America's debt load, saying in its 30-year outlook that, if unaddressed, the debt will soon spiral upwards to new highs that could ultimately imperil the US economy.

In full, this year's deficit will decline by $1.7tn, representing the single largest decline in the federal deficit in American history, the Office of Management and Budget said in August.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said: “This is a record no one should be proud of.

“In the past 18 months, we’ve witnessed inflation rise to a 40-year high, interest rates climbing in part to combat this inflation, and several budget-busting pieces of legislation and executive actions,” MacGuineas said. “We are addicted to debt.”

A representative from the Treasury Department was not immediately available for comment.

Updated: October 05, 2022, 5:39 PM

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