Credit: Getty Images.

America has a $38 trillion national debt, about 120% of GDP, with budget deficits adding $2 trillion annually. Some say governments should manage budgets like families must. But governments are not families, and that analogy can’t capture the complexity of government debt. Another metaphor, however, is unsettlingly appropriate: Our debt situation is a lit bomb, with more than one fuse burning toward its core.

First, consider interest rates. About half of our national debt is interest, a cost constantly rising, with higher interest rates on expanding debt. Governments can borrow and keep rolling over loans indefinitely — as long as the interest costs are manageable. And they were, for a long stretch. But lately central banks have raised interest rates to combat inflation. So when a past government-issued bond with, say, a 2% interest rate comes due, refinancing it might cost 4% or more.

Advertisement

Article continues below this ad

The interest rate bond purchasers require to loan money to the government reflects the risk of the loan. The bond market shrugs off (for now) the risk of default; the more likely risk is inflation. If........

© Times Union