1 In 5 Dollars The Government Expends Goes To Repaying Investors. Here's Why This Spells Trouble For Trump And DOGE

As of today, the U.S. debt has skyrocketed to $36 trillion and around one in every five dollars the government spends goes straight into repaying investors. In addition to causing the government a great deal of trouble, this scenario is also becoming a potential stumbling block for Donald Trump’s economic ambitions and will impact the new government agency headed by Musk and Ramaswamy.

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The U.S. federal debt is growing relentlessly. According to White House debt data, it was $19.5 trillion in 2016, shortly before Trump was elected. It skyrocketed to $26.9 trillion by 2020 and now is nearly $36 trillion. "The point is that fiscal policy reflects joint action by Congress and the president," David Primo, a University of Rochester professor of political science and business administration, told AP. This directly impacts how the government functions, so it’s not just about numbers.

According to the Congressional Budget Office (CBO), interest payments alone will total more than $1 trillion in the upcoming year. The government intends to spend less on national security than on these payments. What’s worse, rising debt service costs are crowding out essential programs like infrastructure, education and health care – areas that are supposed to contribute to future growth.

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Big Promises, Bigger Obstacles

Trump has talked about big economic plans, including tax cuts and tariffs. But the rising cost of paying off existing debt means there's less room for these moves. The costs of servicing this huge debt leave Trump with fewer options for ambitious economic measures. Increased debt restricts the federal budget’s flexibility, making it more difficult to enact tax cuts that Trump claims would help the middle class.

Critics argue that Trump’s proposed tax cuts, like those from 2017, largely benefit the wealthiest Americans and add to the already ballooning debt. Additionally, rising national debt tends to raise interest rates, making it more expensive for Americans to purchase houses, vehicles or make long-term investments. 

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The Forces Pulling Interest Rates

Jeffrey Schmid, the president of the Kansas City Fed, has recently stressed that three significant factors influence interest rates: growing debt, an aging population and productivity growth. Productivity gains, especially driven by new tech like AI, could mean higher rates. However, an aging population and the tendency of older generations to save more could push rates lower. “While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle,” Schmid said.

With a $36 trillion bill, the government must keep attracting investors to buy its bonds, which will mean offering higher interest rates.

Without major adjustments, the national debt will continue destabilizing the economy, making it even harder for investors and the government to take risks. The effectiveness of this new agency’s cost-cutting initiatives will change in conjunction with interest rate fluctuations. The ongoing question is whether productivity and new technology can save the day or if the growing debt will push rates further, limiting economic growth and complicating the agency’s mission to streamline spending.

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