David Friedberg: America’s $40 Trillion Debt Problem Is About To Get Much Worse
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Episode Description
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Brief Summary
The episode covers US debt refinancing, rising borrowing costs, and inflation's impact on fiscal policy.
Key points
- Rising Borrowing Costs. As borrowing costs climb, the fiscal deficit is set to increase significantly.
- US Government's Debt Crisis. The federal government faces a looming $10 trillion debt refinancing challenge over the next year.
- Impact of Interest Rates. For every 1% change in interest rates, the government faces significant GDP costs.
Episode highlights
- Rising Borrowing CostsAs borrowing costs climb, the fiscal deficit is set to increase significantly.“The borrowing cost now is going to climb up.”0:17Aug 31, 2026
- US Government's Debt CrisisThe federal government faces a looming $10 trillion debt refinancing challenge over the next year.“This year, the deficit will be roughly $2 trillion.”1:13Aug 31, 2026
Transcript
This federal government has a problem because over the next 12 months, they have to refinance $10 trillion of dollars of debt. That debt is coming due, those bonds are now due, they have to pay the principal back to the bond holders, and they got to go back to the Treasury market and sell more Treasuries to borrow more money to refinance. So, the borrowing cost now is going to climb up, and when that borrowing cost climbs up, the federal government's burn goes up, and the fiscal deficit goes up. So, my theory and my argument on this is there is no action that the Fed can take that's actually going to have a meaningful effect on the long end of the
curve. We have fundamental fiscal spending problem with the federal government right now. It is very expensive now to borrow money if you're the US federal government. And the reason is persistent inflation, I would argue because of excess government spending on social programs and other things, and the big problem at this point is the federal government is spending so much that if the federal government were to cut spending aggressively, the argument and the concern is it would hit unemployment, and it would cause a recession because the federal government is such an intricate part of the economy now. That's the argument. But, it's causing
inflation, and it is causing deficit spending. So, this year, the deficit will be roughly, call it $2 trillion, and as a result, the market is saying, "We are worried about the US fiscal solvency over the long run, or there's a higher risk. As a result, we're going to charge you a higher interest, 5.2% on the 30-year." What does this mean for the federal government? Well, today, the federal government's average cost of debt is 3.4%. That's what we're paying on interest on average on the $40 trillion of dollars of debt that the federal government has outstanding. For every 1% change in the interest rate, the US government has to pay 1.25%
of GDP in excess interest each year. 1.25% of GDP in interest each year for that 1% change in the interest rate.
