Why Fed Rate Hikes Will Worsen the National Debt

Jun 28, 2022 | Economic Collapse

The Federal Reserve, the central bank of the United States, is attempting to boost interest rates in an effort to stem the unrestrained rate of price inflation. Jerome Powell, the chairman of the Federal Reserve, recently announced the largest incremental rate rise since 1994. Naturally, the most of the discussion has been on whether or not this will truly be able to control inflation and if it would lead to a recession.

However, the Fed’s aggressive interest rate hike will have another significant side effect—the ticking time bomb that is our national debt will accelerate.

Just paying the interest on the $30.5 trillion in debt and adding the national debt to that already represents a significant price. Every every day, federal taxpayers spend approximately $900 million just on interest!

The national debt’s interest costs were already expected to skyrocket dramatically over the next few years, necessitating billions more in federal taxes. The Peter G. Peterson Foundation estimates that by 2052, interest payments would account for about 40% of all federal receipts, totaling around $66 trillion over the following 30 years.

But if rates increase more than first anticipated, it would cost significantly more to fund both our future borrowing and a portion of our current debt.

According to Brian Riedl of the Manhattan Institute, unexpectedly high-interest rates will cause the national debt to grow much more problematic than it previously was.

Let me attempt to make this as clear as I can.

Increased interest rates increase the expense of servicing our national debt. More taxes, whether direct or indirect, eventually result from higher interest expenses. Therefore, the measures the government is adopting in an effort to control inflation may ultimately result in tax increases for millions of American households.

Although one may still contend that it is worthwhile, it is nevertheless important to recognize this genuine consequence. There will always be trade-offs and effects of policy decisions.

Instead of spending responsibly, our politicians ran up multi-trillion dollar deficits and printed countless billions of new currency. As a result, we saw shocking price rises. Additionally, when interest rates increase and the cost of our debt increases, we will have to pay billions more in taxes.

All of this may have been prevented. Holding our leaders accountable is all we can do right now, though, to ensure that it never occurs again.

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