Peter Schiff Warns Interest on National Debt Will Pass Social Security Next Year: ‘The Biggest Line in the Budget...’
Veteran investor Peter Schiff said interest on the national debt will pass Social Security next year, adding that "the biggest line in the budget is the one nobody voted for."
Schiff wrote in a post on X: "A few months ago interest on the national debt passed defense. Now it’s 40% higher. Next year it passes Social Security. The biggest line in the budget is the one nobody voted for." He elaborated on "The Peter Schiff Show" podcast, released on Monday, the day before the midterm elections.
Schiff on Rising Interest Costs
"Next year, the cost of paying interest on the debt is going to exceed Social Security. And that’s if interest rates don’t even go up," Schiff said.
He said interest payments on the national debt had surpassed defense spending a few months earlier and were now 40% higher. He put the defense budget at about $1 trillion and Social Security spending at $1.7 trillion, saying Social Security was the only budget line still larger than interest payments.
Schiff attributed the increase to maturing government debt that needs to be refinanced. He said some of that debt carried coupon rates ranging from 0.5% to 2.5%, but now needs to be rolled over at rates of 4% to 5%.
Schiff on the Fed’s Bind
Schiff said that if the Federal Reserve raised interest rates enough to bring inflation anywhere near its 2% target, annual interest payments on the national debt could rise to $3 trillion to $4 trillion.
"The entire tax revenue for the United States government is not much more than 5 trillion," Schiff said, arguing that the government could not afford such a large interest bill. He also warned that higher rates could trigger a severe recession, bank failures and defaults.
"The Fed has created a box for itself where it can’t fight inflation because trying to fight inflation will bring about a crisis that the Fed fears even more," Schiff said. He predicted that the central bank would eventually have to abandon its rate-hiking cycle and return to quantitative easing.
Zandi and Dalio on Debt
The Treasury Department had separately reported net interest spending of $1.052 trillion for the fiscal year that ended Sept. 30, above the $965 billion spent on national defense. Moody’s Analytics Chief Economist Mark Zandi had said the trajectory moves the country toward a "fiscal reckoning."
Schiff’s comments echo warnings that investor Ray Dalio had already made about the debt. In an earlier post on X, Dalio had said countries go broke when the supply of debt surpasses demand and when debt service payments rise enough to "painfully squeeze out other spending." He had said both conditions were occurring in the U.S.
Dalio had also said that higher debt pushes yields higher, which raises interest expenses and deficits and requires even more debt issuance. Credit market participants call that compounding cycle a "death spiral," he had said.
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