Government debt, which has been rising significantly in recent years, is now having noticeable effects on the broader economy, particularly on the cost of borrowing for individuals and businesses. As the government continues to borrow large sums, it competes with private borrowers for capital, driving up interest rates on mortgages, car loans, and credit cards. This upward pressure on borrowing costs is having a real impact on household budgets, making it harder for families to afford essential expenses like home ownership, car purchases, and debt repayment.
The article notes that mortgage rates have risen again this week, with the average 30-year fixed rate climbing past 6.8%. This trend is not merely a post-pandemic phenomenon but is indicative of a deeper issue: the rising debt of the federal government. The increased borrowing is putting sustained pressure on interest rates, which are becoming a central factor in the affordability of home purchases, vehicle financing, and personal debt repayment. Homeowners and prospective buyers are feeling the squeeze as higher rates make it more difficult to secure affordable mortgages.
For example, the article points out that if government debt had remained at 2015 levels, the typical family could save about $222 per month on their mortgage payments. Going back further to 2005 debt levels would result in even greater monthly savings of around $536. These figures demonstrate that the growing debt is not just a financial burden for the federal government but also a tangible financial strain on the average American household, affecting their ability to afford basic needs and long-term financial planning.
Experts suggest a growing shift in economic dynamics, where the debt itself is a primary driver of long-term interest rates. This phenomenon, known as ‘crowding out,’ occurs when the government competes with private borrowers for financial capital. As a result, interest rates increase, making borrowing more expensive and limiting access to credit for individuals and businesses. These higher borrowing costs have a cascading effect on the economy, influencing factors like mortgage affordability, student loans, auto financing, and credit card debt, all of which are essential to personal financial stability.
The article also highlights how the surge in government borrowing has influenced the broader economic landscape. For instance, student loan interest rates are now at their highest levels in almost two decades, tying directly to federal Treasury yields. Similarly, auto loan rates are on the rise, making it more challenging for lower-income consumers to purchase vehicles. Furthermore, the average interest rate on credit cards has climbed to around 20%, creating additional financial pressure for households relying on credit to manage day-to-day expenses.
These debt-driven rate increases are framed as an ‘invisible tax’—a financial burden that is felt every month by millions of Americans. The cost of borrowing is no longer a theoretical concern but a daily reality for many. Families are seeing their budgets squeezed, businesses are delaying investments, and new entrepreneurs may face higher hurdles in launching or expanding their ventures. These financial strains are reshaping economic behavior and decision-making across all levels of society.
Despite the growing awareness of the problem, some economists have been slow to acknowledge the full impact of rising debt on interest rates. The Congressional Budget Office (CBO), for instance, has estimated that long-term interest rates will stabilize at lower levels even as government debt continues to grow. However, recent empirical studies suggest that rising debt is pushing up interest rates more than the CBO predicts. This discrepancy highlights the urgency of addressing the issue, as the implications of inaction extend beyond financial concerns and threaten the stability of the broader economy.
Ultimately, the article underscores that the effects of rising government debt are not abstract or long-term but deeply embedded in everyday economic life. For millions of Americans, the cost of inaction is already being felt in the form of higher interest payments and reduced financial flexibility. The growing debt is a pressing issue that demands attention, as its impact is no longer confined to policymakers but is a real and immediate challenge for households and businesses alike.