Interest on US Debt Just 3.1% of GDP — Lowest Since 2004

The fears of inflation hawks and bond vigilantes that US debt would stifle economic recovery have been cooled by recent inflation statistics and should be further cooled by the low interest rate the US is paying on its massive debt. According to a report from Bloomberg News, US interest on the federal debt totaled just 3.1% of US gross domestic product in 2011. That’s the lowest total since 2004, and the second-lowest since 1980.

The forecast interest payment for 2012 is 4.4% of US GDP, which is lower than the rate in 1996, when President Clinton was running for re-election. The highest rate in the last 50 years was 4.8%, in 1991.

The loss of its ‘AAA’ credit rating did not materially affect the US’s ability to borrow because the US dollar remains the world’s safe haven currency. The shocks to the euro, which some think could lead to the dissolution of the single currency, has helped keep US bond yields low.

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