The US National Debt is a Real-World Problem

So here, in a real small nutshell, is how national debt increases and WHY we are on the verge of major problems with out of control government spending.

So let's say the government says, "Let's forgive all the student debt!"  And they pass that law that requires $500 billion dollars.  The government doesnt have $500 billion in their checkbook or savings accounts so they direct the Treasury to "get us $500 billion dollars by July 1!"  The US Treasury then announces that "We will have an auction on June 1 to auction off $500 billion of 10 year Treasury Bills".  Once someone agrees to buy the Treasury Bills then that "money" is effectively created out of nothing but faith, confidence and promises.  The buying party expects to get monthly interest paid to them by the US Government as long as they hold the bill and then get reimbursed in full when the 10 years is up.  But let's say that the auction doesn't produce too many buyers because folks are realizing there is already $33 trillion in national debt and they aren't super interested in buying a whole lot more?  Well then the interest rate will be raised from 5% to 6% to 7% in order to entice people to buy a more risky investment.

But now let's say that the entire $33 trillion needs to be refinanced at 7% and the world realizes that the US Government can't possible make interest payments AND principal payments on that insurmountable mountain of debt?  That's when the FAITH AND CONFIDENCE collapse and America starts whirling around the debt-spiral-drain.  Sadly, we are very close...and maybe it's already started.

For years, budget hawks warned about the damaging effects of the mushrooming national debt, which now totals more than $33 trillion. But they had to speculate about how a debt crisis would materialize because it was only theoretical.

We’re now beginning to see the real-life effects of an unsustainable federal debt load. To finance trillions of dollars in spending beyond what incoming revenue can support, the US Treasury is now issuing more debt in the form of Treasury securities than global financial markets can readily absorb. That forces the borrower — the US government — to pay higher interest rates, which in turn pushes up borrowing costs for consumers and businesses in much of the Western world.

It’s not yet a crisis, in the sense of an unavoidable calamity that will wreck careers and trash living standards. But the excessive debt of the United States now impacts anybody who takes out a loan or invests in stocks. Once a routine and unexciting part of the market, debt issuance by the Treasury is now a hot Wall Street topic as investors plot how to avoid losses — or capture profits — from this new source of volatility.

The annual US budget deficit hit $2 trillion in fiscal 2023, which ended in September. That was a big jump from the $1.4 trillion deficit in 2022. In theory, the annual deficit should be shrinking, since massive amounts of COVID stimulus spending in 2020 and 2021 have wound down and the overall economy has been solid. Yet the trend is worsening, rather than improving, due largely to decades of fiscal negligence by both Democrats and Republicans.

What really got investors’ attention during recent months wasn’t the 2023 deficit figure, but a July 31 announcement by the Treasury that it planned to borrow $1 trillion in the third quarter alone, $274 billion more than its estimate from just two months earlier. The government needed the extra financing because tax receipts were coming in lower than expected, while outflows were higher.

https://finance.yahoo.com/news/the-national-debt-is-finally-a-real-world-problem-202357147.html