Key Facts on Debt and Affordability
Inflation has been above the 2% target for five-and-a-half years and is projected to total about 3.5% in 2026 alone.
Prices have risen by 24% since March 2021, compared to 11% had inflation remained at its 2% annual target. That’s an extra $7,000 in per capita costs in 2026 alone, although higher inflation has also pushed up nominal wages.
The growth in the debt-to-GDP ratio over the last quarter century is responsible for an estimated 1.5% of interest rates.
Mortgage interest rates have risen to about 7%, up from less than 3% in early 2021 and an average of 5% over the prior two decades.
A 1.5 percentage point interest rate reduction would save a family $5,800 per year on the cost of a new $500,000 mortgage and $500 per year on a new $50,000 car loan.
Health care spending consumes 18% of GDP – over $17,000 per person – with over one-third of the costs paid for directly by the federal government and nearly all costs subsidized by the federal government in some way.
Stabilizing the debt-to-GDP ratio could boost income growth 44% as compared to allowing debt to grow rapidly, increasing income by $36,000 per household by 2056.
Failing to save Social Security will lead to a 22% abrupt benefit cut in 2032. This is the equivalent of a $500 a month per beneficiary cut – a month’s worth of grocery bills – if applied today.
With interest rates on new Treasury bonds and notes at around 5% and medium-term nominal economic growth expected to be closer to 4%, the U.S. is entering a debt spiral. This could lead to a fiscal crisis, which could result in exploding unemployment rates, crashing asset values, surging inflation, falling incomes, sharp and unexpected increases in taxes and cuts in government support, or some combination.
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