1 hour ago - Economy

America's debt is getting more expensive

Courtenay Brown

Illustration of George Washington from a one dollar bill peeking out of a barrel — Illustration: Sarah Grillo/Axios

Governments around the world are entering a new era of higher borrowing costs already deeply indebted. More revenue will go toward interest payments as old debt gets refinanced at today's higher rates.

America is already watching that dynamic play out: Annualized interest costs have reached $1.2 trillion, exceeding defense spending.

What they're saying: "The government consistently rolls over portions of its debt at market prices, so the effective interest it pays on its entire debt stock slowly rises in a high-rate environment," economic researchers at Charles Schwab wrote Tuesday morning in a note titled "America's New Debt Reality."

The risk is a vicious cycle: Bigger interest bills add to deficits and borrowing needs, putting even more bonds into a market already awash in debt.

Zoom in: Debt held by the public is currently about 101% of GDP, according to the Congressional Budget Office. The nonpartisan agency projects that will rise to 120% in 10 years.

The situation unfolds in relatively good economic times. A recession would mean weaker revenues and likely more spending to support the economy, requiring Washington to borrow even more.

What to watch: Last week, the government paid the highest auction yields on 10-year notes since 2007 and 30-year bonds since 2001.

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America's debt is getting more expensive

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