Even at these historically low interest rates, the interest on the public national debt (that is, not including the interest paid on the Social Security Trust Fund, which is considered “intergovernmental holdings”) reached $260 billion in fiscal year 2009. The Treasury includes all interest, including that “paid” to the Social Security Trust Fund for the Social Security taxes collected but promptly “loaned” to the general fund to spend, so you find news articles like this: Uncle Sam Will Pay $450 Billion This Year Just to Cover Interest on National Debt
According to the Treasury Department report, released on Dec. 10, the federal government expects to pay $449,070,000.00 in interest on Treasury debt securities for FY 2009.
The Health and Human Services budget, which includes Medicare and Medicaid, will cost $739,241,000.00 for the fiscal year; Social Security Administration, $699,976,000.00; and the Defense Department-Military budget, $656,722,000.00.
The debt held by the Social Security Trust Fund and other governmental agencies is $4.4 trillion, and the remainder of the debt (owed to citizens or “external” owners) is $6.6 trillion.
According to the Treasury, the average interest paid on this $10.95 trillion in debt is 3.7%. In January 2001, not very long ago, the average interest paid was 6.5%–almost double the current rate. Historically, a rate of 6-7% is not uncommon.
Thus a return to 7% interest rates would in effect double the interest paid annually to nearly $1 trillion per year. As noted above, this debt is spread out over varying maturities, so a rapid rise in interest rates would only effect a small portion of old debt at first.