THE NEW RULES OF RETIREMENT SAVING • 37
There’s another reason rates are likely to stay low long-term . The government wants — and needs — low interest rates. The U.S. government has a big incentive to help keep interest rates low: it reduces the federal government’s debt payments. An increasingly large portion of our federal budget each year goes to paying interest on the U.S. debt. In 2010, 6 percent of our federal budget was dedicated to debt service, or around $209 billion. By 2035, the Congressional Budget Office projects debt service will grow to 25 percent of the budget, or around $2.27 trillion. A few years ago, the federal government was borrowing and repay- ing money at very low interest rates. As those rates have risen, so has our national debt. Service on our federal debt currently makes up nearly 7% of all federal outlays, making it one of the federal government's biggest expenses.⁷ Higher interest rates make this problem worse. For example, in Q4 of 2021, our government was servicing our debt at around 1.6%. By Q4 2022, it was servicing our debt at around 6%. That interest increased our government's debt payments by more than $63 billion dollars - in one quarter alone!⁸ ⁷ Pew Research Center. February 14, 2023. "5 Facts about the U.S. national debt." https://www.pewresearch.org/short-reads/2023/02/14/facts-about-the-us-national- debt/ ⁸ Bloomberg News. July 13, 2023."US Racks up $652 Billion in Debt Costs as Rates Hit 11-year High." https://www.bnnbloomberg.ca/us-racks-up-652-billion-in-interest- costs-as-higher-rates-bite-1.1945430
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