Friedberg warns US debt service could hit $1.5 trillion, over a third of the federal budget.
“We're spending $800,000,000,000 a year on debt service right now. That could skyrocket to $1,500,000,000,000 which is over a third of the federal budget each year going into next year.”
Friedberg explains rising interest rates compressed VC time horizons from ten-fifteen years to under five years.
“When interest rates jump up to 4%, well, now I can invest my money and I can make 20% back on my money in four and a half years.”
Friedberg calculates refinancing half of U.S. debt at higher rates adds $300 billion in annual interest payments.
“And when that happens, you know, 2% increase in interest on $15,000,000,000,000 that's another $300,000,000,000 of interest payments a year.”
Friedberg calculates that 5% interest rates would add $650 billion yearly, bringing total interest expense near $2 trillion.
“But if rates climb closer to 5%, as I mentioned in the past, just using the current debt levels, it adds another $650,000,000,000 a year of interest expense, which takes interest expense almost up to 2,000,000,000,000 a year just paying the interest on the past debt.”
Friedberg states each 1% interest rate increase costs US government 1.25% of GDP annually in interest.
“For every 1% change in the interest rate, the US government has to pay 1.25% of GDP in excess interest each year.”