U.S. federal debt reached a total of $11.4 trillion in late 2006. Of that amount, $3.2 trillion — or 28% — is held by foreigners. To service that debt, we wonder: How much does the U.S. government have to spend each year just on interest payments to its foreign creditors?
A. More than 1% of U.S. GDP
B. More than $1 for every American, every day of the year
C. More than combined spending on child nutrition, food stamps and foster care
D. All of the above
A. More than 1% of U.S. GDP is correct.
With high levels of borrowing and rising interest rates, U.S. interest payments on foreign-held debt are estimated to have grown to $125 billion in 2006, according to Bank of America. That figure is equivalent to about 1% of the total size of the entire GDP of the United States, the world's largest economy.
B. More than $1 for every American, every day of the year is correct.
In total, interest payments on U.S. government debt held by foreign investors reached $113.6 billion in 2005, the last year for which official data are available.
Put another way, the United States currently spends more than $310 million paying its foreign creditors — each and every day. That, in turn, comes to slightly more than $1 daily for every man, woman and child in the country today.
C. More than combined spending on child nutrition, food stamps and foster care is correct.
Since 2000, international investors have bought some $4.6 trillion in U.S. securities, including U.S. Treasury securities and so-called "agency securities" issued or guaranteed by a variety of other government-related entities. That sum is more than triple the cumulative level of the 1990s — and carries sizable interest payments.
In fact, the interest paid to foreigners in 2005 was nearly 44% more than the $76 billion that the U.S. federal government spent on child nutrition, food stamps, foster care and family support combined.
D. All of the above is correct.
All told, interest payments on all government debt are one of the fastest-growing government outlays. In fact, they are now the sixth-largest category in the U.S. budget.
Net interest payments on debt held by investors both at home and abroad are expected to reach a staggering $261.3 billion in fiscal year 2008 — an amount close to half the sum currently spent on Social Security or defense. In contrast, the United States spent only $175.9 billion on net interest as recently as 2003.