|

The annual interest rate payment on government debt is $850 billion and rising fast

At the current pace, interest on US government debt will soon hit one trillion dollars.

Note that interest on the national debt either stabilizes or drops during recession. 

This happens because the Fed slashes interest rates and holds them too low, too long, creating the next bubble that it eventually must react to. 

Social security and transfer payments

 

Transfer payment notes

  • Transfer payments are redistributions of money for which there are no goods or services exchanged. 
  • Social Security, Medicare, Medicaid, and food stamps (now called SNAP) are examples of transfer payments.
  • During recessions transfer payments tend to soar in recessions unlike interest on the national debt. 
  • Transfer payments are also influenced by retirements so demographics come into play. That $2.88 trillion is guaranteed to rise from here.

Your Fed at work 

Between February of 2020 and February of 2021, the US Treasury had a golden opportunity to refinance long-term debt at 2.0 percent or under, most of the time well under 2.0 percent.

The 30-year bond yield bottomed at 0.99 percent. That was the secular low. The decades-long bond bull is over.

It's important to note the Treasury could not have refinanced at the lowest of those rates because the act of doing so would have tended to push yields up, but perhaps something around 2.0 percent on average may have been doable. 

Now the Fed is promising to hold yields higher for longer. The three-month yield is currently 4.66 percent. Lovely.

Your tax Dollars at work

Before a dime is spent on roads, build back better, infrastructure, or anything else, the first $3.7 trillion (transfer payments plus interest on national debt) has already been spent. 

Not to worry, they say we owe this money to ourselves. 

Yeah, right.

Correction: Between February of 2020 and February of 2021, the US Treasury had a golden opportunity to refinance long-term debt at 2.0 percent or under, most of the time well under 2.0 percent.

I previously said Fed instead of Treasury

A word about owing debt to ourselves.

fxsoriginal

Apparently debt does not matter because we owe it to ourselves. Ridiculous.

Author

Mike “Mish” Shedlock's

Mike “Mish” Shedlock's

Sitka Pacific Capital Management,Llc

More from Mike “Mish” Shedlock's
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD: Bulls pray for a dovish Fed

EUR/USD has finally taken a breather after a pretty energetic climb. The pair broke above 1.1680 in the second half of the week, reaching its highest levels in around two months before running into some selling pressure. Even so, it has gained almost two cents from the late-November dip just below 1.1500 the figure.

GBP/USD trims gains, recedes toward 1.3320

GBP/USD is struggling to keep its daily advance, coming under fresh pressure and retreating to the 1.3320 zone following a mild bullish attempt in the Greenback. Even though US consumer sentiment surprised to the upside, the US Dollar isn’t getting much love, as traders are far more interested in what the Fed will say next week.

Gold: Bullish momentum fades despite broad USD weakness

After rising more than 3.5% in the previous week, Gold has entered a consolidation phase and fluctuated at around $4,200. The Federal Reserve’s interest rate decision and revised Summary of Economic Projections, also known as the dot plot, could trigger the next directional move in XAU/USD. 

Week ahead: Rate cut or market shock? The Fed decides

Fed rate cut widely expected; dot plot and overall meeting rhetoric also matter. Risk appetite is supported by Fed rate cut expectations; cryptos show signs of life. RBA, BoC and SNB also meet; chances of surprises are relatively low. Dollar weakness could linger; both the aussie and the yen best positioned to gain further. Gold and oil eye Ukraine-Russia developments; a peace deal remains elusive.

Week ahead – Rate cut or market shock? The Fed decides

Fed rate cut widely expected; dot plot and overall meeting rhetoric also matter. Risk appetite is supported by Fed rate cut expectations; cryptos show signs of life. RBA, BoC and SNB also meet; chances of surprises are relatively low.

Ripple faces persistent bear risks, shrugging off ETF inflows

Ripple is extending its decline for the second consecutive day, trading at $2.06 at the time of writing on Friday. Sentiment surrounding the cross-border remittance token continues to lag despite steady inflows into XRP spot ETFs.