We are now paying $1 trillion per year in interest which is like half the budget. As there's no way this will ever get paid down so it's just a matter of time. Who exactly isn't getting paid back first or can we expect more hyperinflation?
What happens when the US government defaults on the national debt?
byu/Cute-University5283 inAskEconomics
Posted by Cute-University5283
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Last year it was the equivalent of 19% of all federal revenue collections.
Anyway, the debt it doesn’t need to get paid down in full and no one expects it to be. What matters is whether the government can keep servicing it at a reasonable cost, which only becomes problematic if investors doubt the government’s ability to keep making interest payments. If that situation arises, interest rates increase, and as existing debt matures and is refinanced, the costs of servicing increase. This happens gradually because most government debt is issued at fixed rates and rolls over over time. So, this gives time to adjust before a debt crisis emerges.
Ultimately, interest payments must be funded by tax revenue. That means the hinge is whether tax revenues can grow fast enough to cover the real interest cost of the debt. Real growth helps because it tends to increase tax receipts, and inflation helps by eroding the real interest rate.
So far, markets behave as if they believe the US can keep servicing the national debt. That belief can change, but if it does, the warning signs will show up first in interest rates and refinancing costs before it ever becomes an immediate threat.