In the first seven months of Fiscal Year (FY) 2024, net interest (payments minus income) on the federal debt reached $514 billion, exceeding spending on both national defense ($498 billion) and Medicare ($465 billion). The interest tab also exceeded all the money spent on veterans, education, and transportation combined. Spending on interest is now the second largest line item in the federal budget after Social Security and the fastest growing part of the budget, on track to reach $870 billion by the end of 2024.
According to the Congressional Budget Office, the federal budget deficit was $857 billion in the first seven months of fiscal year 2024. In effect, the government is borrowing at interest to pay the interest on its debt, compounding the debt. For the lender, it’s called “the miracle of compound interest” – interest on interest compounds exponentially. But for the debtor, it’s a curse, compounding like a cancer to the point of devouring assets while still growing the debt. As Daniel Amerman, a chartered financial analyst, writes in an article titled “Could A Compound Interest Wildfire Threaten U.S. Solvency?”:
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WEB OF DEBT BLOG 
Compound Interest Is Devouring the Federal Budget: It’s Time to Take Back the Money Power
Albert Einstein is often quoted as saying that compound interest is “the most powerful force in the universe.” The quote is probably apocryphal, but it reflects a mathematical truth. Interest on earlier interest grows exponentially, outrunning the linear growth of revenue and eventually consuming everything.
That is where the United States now stands. The government does pay the interest on its debt every year, but it is having to pay it with borrowed money. The interest curve is rising exponentially, while the tax base is not.
Interest is now the fastest growing line item in the entire federal budget. The government paid $970 billion in net interest in FY2025, more than the Pentagon budget and rapidly closing in on Social Security. It already exceeds spending on Medicare and national defense and is second only to Social Security. The Congressional Budget Office projects that interest will reach nearly $1.8 trillion by 2035 and will cost taxpayers $13.8 trillion over the next decade. That is roughly what Social Security will pay out over the same decade (about $1.6 trillion a year). The Social Security Trust Fund is running dry, not because there are too many seniors, but because interest payments are consuming the federal budget that should be shoring it up.
Continue reading →Filed under: Ellen Brown Articles/Commentary | Tagged: compound interest, economics, economy, Federal Reserve, FINANCE, Inflation, money, national debt, seigniorage, Trillion dollar coin | 5 Comments »