The Hidden Financial Burden: How Government Debt is Impacting Your Wallet

This week, mortgage rates have risen once again, with the average 30-year fixed rate surpassing 6.8%. This trend isn’t merely a residual effect of the pandemic; rather, it serves as a warning signal. Underlying this development is the escalating government debt, which is exerting consistent upward pressure on borrowing costs.

If you find your mortgage, car loan, or credit card payments to be higher than they were a few years ago, you are certainly not alone. Contrary to popular belief, this increase is not solely attributed to inflation or the Federal Reserve’s policies. Rather, the surge in federal borrowing plays a significant role in inflating interest rates across various sectors.

Had the government debt remained at 2015 levels, typical families could be saving an average of $222 monthly on their mortgage payments. If we revert to 2005 debt levels, that figure skyrockets to $536. This represents tangible money that is vanishing from household budgets, not due to rising home prices, but because Washington continues its borrowing spree.

Understanding the Economic Context

For years, economists have debated why interest rates have been on a declining trend. Multiple factors such as aging populations, diminished productivity, and foreign interest in American debt have come into play. This situation has enabled Uncle Sam to amass larger deficits and debt. After all, low interest rates made refinancing appealing. Consequently, many Americans became accustomed to lower monthly payments on mortgages, car loans, and other debt-related expenses.

Now, we face interest rates that have surged and stubbornly remained high. This shift followed an avalanche of unfunded federal spending in 2020 and 2021, which dramatically inflated the deficit and shook investor confidence in the long-term fiscal stability of the nation. As a result, bond markets reacted negatively to policymakers’ audacious financial maneuvers.

Evidence from Recent Research

Recent research conducted for the Mercatus Center at George Mason University, alongside an expanding body of economic literature, reveals that the debt itself is a key driver of increased long-term interest rates—more than some analysts may be willing to acknowledge. While broader economic developments and policy decisions also contribute to this issue, the impact of government debt is a significant concern that cannot be overlooked.

As trillions of dollars in debt accumulate, the Treasury must pay hundreds of billions more in interest. This scenario poses a threat not just to Washington’s financial stability but also to your personal finances.