I’VE BEEN WARNING ABOUT THIS SCENARIO FOR TWO DECADES BUT NOBODY CARED UNTIL IT WAS TOO LATE: Inflation Will Make Government Budget Problems Worse.

Now consider the public debt—especially the federal debt that ballooned from large deficits in recent years. (In 2020, federal revenues were $3.4 trillion and spending was $6.6 trillion.) The interest cost of the national debt in 2008 was $253 billion and remained at about that level through 2015. Even though the debt doubled in those years, sharply falling interest rates and low inflation worked to contain costs.

But that was yesterday. With today’s higher inflation and rising interest rates (perhaps with more to come), the Congressional Budget Office (CBO) estimates the interest cost of public debt to be $413 billion in 2021. Obviously, any dollar spent on interest cannot be spent on government benefits and services to taxpayers.

Washington has financed a lot of its bad spending habits with short-term debt that will have to be refinanced just as rates are rising.