SAN GABRIEL VALLEY — Rising National Debt Could keep borrowing costs elevated for families and businesses if federal borrowing continues to grow. The nation’s gross debt surpassed $40 trillion this month, according to U.S. Treasury data.
Treasury data showed total public debt outstanding reached about $40.05 trillion on Aug. 18. That included roughly $32.27 trillion held by the public and $7.78 trillion in intragovernmental holdings.
The milestone does not automatically cause mortgage or business loan rates to increase. Inflation, Federal Reserve policy, economic growth and investor demand also affect interest rates.
Still, the Congressional Budget Office says greater federal borrowing tends to push interest rates higher and reduce private investment over time.
Rising National Debt Could Affect Main Street
The federal government finances deficits by selling Treasury securities. Investors receive interest in exchange for lending money to the government.
Treasury yields also influence borrowing throughout the economy. Federal Reserve researchers reported this year that higher long-term Treasury yields increase long-term credit costs for households and businesses.
That connection can reach businesses in El Monte, South El Monte, Baldwin Park, Rosemead and Irwindale.
A restaurant owner may need financing for another location. A manufacturer could borrow for machinery. Contractors may finance vehicles, while property owners often borrow for commercial buildings.
Higher rates can make those investments more expensive.
For example, a hypothetical $500,000, 10-year loan carries a monthly principal-and-interest payment of about $5,551 at 6%. At 8%, that payment rises to about $6,066.
That difference can affect whether a small business expands, hires workers or postpones an investment.
Homebuyers Also Feel Rate Pressure
Rising National Debt Could also affect households indirectly through financial markets.
Mortgage rates do not move directly with the national debt. They are closely associated with longer-term Treasury yields, though mortgage-market conditions also affect what borrowers pay.
Freddie Mac research found a historically strong relationship between 30-year fixed mortgage rates and 10-year Treasury yields.
That relationship matters in the San Gabriel Valley, where high home prices already challenge prospective buyers. A higher mortgage rate can increase monthly payments and reduce purchasing power.
Residents can follow federal borrowing through the U.S. Treasury’s debt information. The Congressional Budget Office also publishes economic and budget projections.
Debt Alone Does Not Determine Rates
The $40 trillion figure does not represent an immediate financial event for local borrowers. The broader concern involves the direction of federal debt and how financial markets respond.
CBO projects that greater federal borrowing ultimately reduces private investment by increasing interest rates and the cost of capital. Other economic forces can strengthen or offset that effect.
For San Gabriel Valley households and businesses, the practical issue is the price of credit. If growing federal borrowing contributes to persistently higher long-term rates, its effects can reach mortgages, commercial properties and business expansion plans throughout the region.
