The U.S. now spends enough annually on interest costs to pay off Canada’s entire federal debt 1.3 times over.Alex Brandon/The Associated Press
With the U.S. spending like gangbusters and borrowing costs edging higher, the U.S. Treasury’s latest debt statement carried a startling revelation: The country shelled out close to US$1.4-trillion over the past 12 months solely on interest payments, an amount nearly on par with the annual federal bill for Social Security.
A sum that vast can be hard to grasp. But here’s one way to think about it. In just one year, the U.S. now spends enough on interest costs to pay off Canada’s entire federal debt 1.3 times over – not that the U.S. is in a position to be bailing anyone else out.
It’s obviously not an apples-to-apples comparison, with one measure being the total amount owed by Canada and the other the money forked out to U.S. bond holders in interest payments.
But the contrast illustrates the scale of how much the U.S. government must spend to service its nearly US$40-trillion debt load, and the extent to which the two countries’ fiscal pictures have diverged.
To be clear, Canada’s own interest burden has surged in the wake of the pandemic peak and the higher interest rates that followed. Canada’s federal government spent roughly $54-billion over the past 12 months servicing its debt, more than double the annual amount in 2019 and roughly equal to Ottawa’s health transfers to the provinces.
But relative to federal revenues, interest accounted for about 9.2 per cent in the first quarter, according to Statistics Canada, up modestly from 7.4 per cent in 2019. In the U.S., interest charges consumed 21 per cent of every dollar Washington took in, according to the U.S. Bureau of Economic Analysis, and that share is projected to keep rising to 26 per cent by 2036 – the steepest interest cost burden since the early 1990s.
Decoder is a weekly feature that unpacks an important economic chart.