The New York Times reports today:

As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt.

Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany.

Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually.
…
“It’s a gigantic issue,” said Kenneth Rogoff, a Harvard professor and the co-author of a forthcoming book, “This Time is Different: Eight Centuries of Financial Folly.” “It leaves us very vulnerable to a global rise in interest rates that might be substantially beyond our control.”

Mr. Rogoff estimates that if the budget office’s debt estimate proves correct, every one percentage point increase in rates could eventually cost Washington an added $170 billion a year.

The long-term situation is particularly perilous, because the added interest costs will worsen what have become record deficits as Washington has rushed to bail out industries and stimulate the economy.

Heritage fellow J.D. Foster wrote five months ago:

The consequences of this government debt bubble for future outlays for federal interest expense–and therefore for the long-term budget picture–are significant. Yet, this debt’s effects on interest rates will have severe economic repercussions in 2009 and 2010.
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Expected federal borrowing for 2009 and 2010 will be far from modest, and the consequences will be significant for interest rates–and potentially crippling for the economy. Using just the consensus estimates, the projected increase in the debt-to-GDP ratio for 2009 alone will raise interest rates by between 0.39 and 0.65 percentage points. In today’s terms, the average mortgage rate at the end of January was about 5.33 percent on a conforming loan mortgage. At the end of 2009, if nothing else occurs, this rate would be between 5.75 and 6 percent.

Using the consensus estimates, by the end of 2010 interest rates will be up another 0.3 to 0.5 percentage points, for a total increase due to the government debt bubble of 0.7 and 1.1 percentage points. That would mean that today’s mortgage rate of 5.33 percent would be between 6 percent and 6.4 percent. Such increases in interest rates would significantly weaken the economy further and delay for many months any hope of significant recovery.