A 'debt spiral,' before a fiscal crisis: interest on the national debt will be growing faster than GDP in just 5 years, think tank warns | Fortune

"Once interest rates exceed the growth rate...primary deficits will lead debt to grow indefinitely. For most of the past 60 years-including all of the last 15-the U.S. has benefited from a structural cushion: interest rates on federal debt stayed below the pace of economic growth. That relationship, which economists measure as R<G, meant that even as the government ran persistent deficits, debt as a share of GDP could remain stable or even shrink."

"Real interest rates on federal debt averaged just 0.9% over the past 15 years, while real GDP growth averaged 2.2%. That buffer is now evaporating. Since 2023, most newly issued Treasury debt has carried yields between 4% and 5%-rates that exceed the economy's long-term expected growth rate. As older, cheaper debt matures and gets rolled over at these higher rates, the average interest cost on the entire federal debt stock is creeping upward."

"According to a recent analysis from the Committee for a Responsible Federal Budget (CRFB), the Congressional Budget Office's latest projections show that by fiscal year 2031, the average interest rate paid on the federal debt will exceed the country's rate of economic growth. In plain terms, that means that the cost of borrowing will be growing faster than the economy's ability to pay for it."

The U.S. faces a critical fiscal milestone in 2031 when interest rates on federal debt will exceed the nation's economic growth rate, a threshold known as R exceeding G. For the past 60 years, the U.S. benefited from R<G, meaning debt as a share of GDP remained stable despite persistent deficits because economic growth outpaced borrowing costs. Real interest rates averaged 0.9% over the past 15 years while GDP growth averaged 2.2%. However, Treasury yields since 2023 range between 4-5%, exceeding long-term growth expectations. As older, cheaper debt matures and refinances at higher rates, average federal debt costs rise. The Committee for a Responsible Federal Budget warns that once R exceeds G, primary deficits will cause debt to grow indefinitely, creating a self-reinforcing negative feedback loop.

Read at Fortune