Net interest vs national defence spending
Ratio of federal net interest outlays to national defence outlays, FY basis.
Reading
Crossover happened in FY2024 and the gap has widened in every fiscal year since. One dollar in five of every tax dollar collected services debt; the fifty-year average is twelve cents.
Thresholds
- watch1 — ratio above 1.0 — interest now the larger line item
Context
Why this matters
The ratio of net interest to national defence is the visceral reframing of the fiscal arithmetic. Defence has been the largest single discretionary line for most of the postwar period; interest has been a residual. The crossover in FY2024 was not a forecast — it was an arithmetic event in progress, and the gap widens in every subsequent fiscal year because most of the maturity wall is rolling from 1–2% coupons to 4%+.
Who watches this
- Brian Riedl (Manhattan Institute) — the most rigorous fiscal analyst publishing on this crossover; tracks it in regular Manhattan Institute reports
- Maya MacGuineas (CRFB) — Committee for a Responsible Federal Budget reports prominently on this measure
- Larry Summers — has used the ratio in his fiscal-trajectory framing
- Jeffrey Gundlach (DoubleLine) — discusses the crossover in his DoubleLine webcasts
- Peter Schiff — the long-running bear who's been pointing at this trajectory since the early 2010s; finally arrived
Recent history
FY2024 net interest $881B vs defence $874B — the first sustained crossover in the modern record. FY2025 widened the gap: $970B vs $916B, a ratio of 1.06×. The maturity calendar (roughly a third of marketable debt rolling in FY2026 alone) implies continued widening through FY2027 absent a long-end rates rally. The postwar low for the ratio was FY1962 at 0.13.
What would change my read
A sustained 150bp+ rally in the long end (10y back below 3%) would slow the interest curve materially. Alternatively, a substantial real defence rebuild would push the ratio back below 1 from the denominator — but in that case the deficit denominator forces other crossovers anyway.