The problem right now is debt is so high that it will be unmanageable with higher than near zero interest rates.

The Fed keeping rates extremely low for almost two decades has made servicing debt cheap. When all you pay is interest, near zero rates make for a very low payment.

The risk of low interest rates is inflating the money supply and causing inflation. When inflation hits, you raise rates to combat it. But at this point we cannot afford to raise interest rates. The increase in debt interest payments would overwhelm us. So the Government will do everything to avoid admitting there is inflation, by excluding various things from the measure.

The game changer has been globalization. Inflation is caused by too much money chasing too few goods. We see it here in real estate and other things that are supply limited. But for the most part global manufacturing capacity is greater than our aggregate demand, so there are never too few goods anymore. But real estate is not counted in the inflation index, so....

Should there be an inflationary spiral that requires higher rates - like in the early 80's when Reagan and Voelcker caused a recession by raising rates to get inflation under control - we cannot do it, without making the federal government largely insolvent.

quote:

Originally posted by Shaql:
Yep. Bankrupt the country, implement the great reset. Hello Socialism!

Hello global digital currency

quote:

Hello global digital currency

We really don't want this. Too easy for someone to do this:

Endgame: Interest On US Debt Skyrockets Above $1 Trillion For The First Time Ever

Back in July, when we last looked at the unprecedented horror show that is the US budget deficit - and concluded correctly, long before the Q2 Quarterly Refunding Announcement, that debt issuance was about to explode and yields would soar - we warned that the debt Rubicon was about to be crossed and "US Debt Interest Payments Are About To Hit $1 Trillion."

Fast forward to today when the endgame has apparently arrived: according to the Treasury's own calculations, total interest is now over $1 trillion (or $1.027 trillion to be precise).

We calculated this by multiplying the average interest rate on marketable US Treasury debt (which according to the Treasury is 3.096% as of Oct 31) by the $26.003 trillion in marketable US debt (as of Oct 31) which nets off to $805 billion, and adding to this non-marketable debt interest (which as of Oct 31 was 2.884% multiplied by the amount of non-marketable debt which is $7.696 trillion) and which in turn is an additional $222 billion in interest. Add across and you get $1.027 trillion.

Naturally, this calculation of estimated real-time interest costs - which is entirely based on Treasury data - is different than what the Treasury actually paid. Interest costs in the fiscal year that ended Sept. 30 ultimately totaled $879.3 billion, up from $717.6 billion the previous year and about 14% of total outlays, however that number is merely lagging what the pro forma print currently is, and will inevitably catch up to it, and then lag on the other side even as pro forma interest payment start dropping (once interest rates plunge after the next QE/YCC is launched).

Fans of exponential functions, we got you covered: the unprecedented surge in both interest rates and interest expense in the past two years means that total US interest has doubled since April 2022 and that's with the inherent lag in interest catch up - as a reminder, the vast majority of 5, 7, 10 and 30 year debt is still locked in at much lower interest rates, and as such, rates will continue to rise as all of the existing debt rolls into much higher rates over the coming years.

Looking ahead, the staggering surge in both yields and total long-term Treasuries in recent months confirms the government will continue to face an escalating interest bill. As a reminder, we were the first to point out that it took just one month after US federal debt first rose above $33 trillion for the first time, to spike by another $600 billion...

https://twitter.com/zerohedge/...lion-first-time-ever



... bringing the total to $33.6 trillion, more than the combined GDPs of China, Japan, Germany, and India.

And just to show you how terrifying it is about to get, BofA's Michael Hartnett notes that "the CBO projects that US government debt will rise by $20 trillion next 10 years, or $5.2 billion every day or $218 million every hour!"

Some more context: total world debt (government, corporate & household) hit a record $227tn in Q1’23, double from $110tn in 2007 & $0.5tn in 1952.

And then there was this warning from the TBAC which very tongue-in-cheek said that "Interest rate expense, as % of GDP, is likely to rise over the medium term", and also over every other term.

As Bloomberg's Mark Cudmore concludes, the worsening metrics may "reignite debate about the US fiscal path amid heavy borrowing from Washington. That dynamic has already helped drive up bond yields, threatened the return of the so-called bond vigilantes and led Fitch Ratings to downgrade US government debt in August."

An even more damning conclusion comes from Hartnett, Fiscal excess in the 2020s is adding to already high levels of government debt; until policy makers address the trajectory of government debt, investors are likely to worry that asset-bearish solutions to indebtedness such as inflation, default, currency debasement, are set to be pursued; but as likely central banks may simply bail out governments in coming years via QE & the introduction of YCC (policies that would be v US dollar negative).

Finally, as we explained yesterday (see "How Treasury Averted A Bond Market "Earthquake" In The Last Second: What Everyone Missed In The TBAC's Remarkable Refunding Presentation"), the US treasury market was this close to collapse as recently as last week, and if it hadn't been for some clever language and sleight-of-forward-guidance by the Treasury, in the latest TBAC statement, the endgame for US debt would now be in play. For now, however, it has been merely delayed.

https://www.zerohedge.com/mark...lion-first-time-ever

Moody's Cuts USA's Aaa Rating Outlook To 'Negative

https://www.zerohedge.com/poli...ing-outlook-negative

Who could have seen that coming?

After a disastrous 30Y bond auction this week, a collapse in Treasury market liquidity, and an accelerating rise in the market's perception of the United States' credit risk, Moody's has just cut its outlook on US credit ratings to negative from stable.

The key driver of the outlook change to negative is Moody's assessment that the downside risks to the US' fiscal strength have increased and may no longer be fully offset by the sovereign's unique credit strengths.

In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody's expects that the US' fiscal deficits will remain very large, significantly weakening debt affordability.

Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.

Moody's does affirm the Aaa rating:

The affirmation of the Aaa ratings reflects Moody's view that the US' formidable credit strengths continue to preserve the sovereign's credit profile.

First, Moody's expects the US to retain its exceptional economic strength. Further positive growth surprises over the medium term could at least slow the deterioration in debt affordability.

Second, the US' institutional and governance strength is also very high, supported in particular by monetary and macroeconomic policy effectiveness. While the adjustment of the US economy and financial sector to higher-for-longer interest rates is underway, policymakers have facilitated the transition through transparent and effective policy.

Finally, the unique and central roles of the US dollar and Treasury bond market in the global financial system provide extraordinary funding capacity and significantly reduce the risk of a sudden spiraling of funding costs, which is particularly relevant in the context of high debt levels and weakening debt affordability.

The US' long-term local- and foreign-currency country ceilings remain unchanged at Aaa. The Aaa local-currency ceiling reflects a small government footprint in the economy, relatively predictable and reliable institutions, very low external imbalances and moderate political risks, all of which reduce the risks posed to non-government issuers by government actions or shocks that would commonly affect the government and the private sector. The foreign-currency ceiling at Aaa reflects the country's strong policy effectiveness and open capital account which reduce transfer and convertibility risks to minimal levels.

Full Rationale for Outrlook cut:

ABSENT POLICY ACTION, FISCAL STRENGTH WILL DECLINE

The sharp rise in US Treasury bond yields this year has increased pre-existing pressure on US debt affordability. In the absence of policy action, Moody's expects the US' debt affordability to decline further, steadily and significantly, to very weak levels compared to other highly-rated sovereigns, which may offset the sovereign's credit strengths.

Past increases in interest rates by the Federal Reserve will continue to drive the US government's interest bill higher over the next few years. Meanwhile, although the government's revenue base will rise in line with the economy as a whole, in the absence of specific policy action, this will occur at a much slower pace than the rise in interest payments.
Moody's expects federal interest payments relative to revenue and GDP to rise to around 26% and 4.5% by 2033, respectively, from 9.7% and 1.9% in 2022. These projections factor in Moody's expectation of higher-for-longer interest rates, with the average annual 10-year Treasury yield peaking at around 4.5% in 2024 and ultimately settling at around 4% over the medium term. The debt affordability forecasts also take into account Moody's expectations that, absent significant policy changes, the federal government will continue to run wide fiscal deficits of around 6% of GDP near term and to around 8% by 2033, the widening being driven by higher interest payments and aging-related entitlement spending.

By comparison, deficits averaged around 3.5% of GDP from 2015-2019. Such deficits will raise the US federal government's debt burden to around 120% of GDP by 2033 from 96% in 2022. In turn, a higher debt burden will inflate the interest bill.

For a reserve currency country like the US, debt affordability - more than the debt burden - determines fiscal strength. As a result, in the absence of measures that limit the size of fiscal deficits, fiscal strength will increasingly weigh on the US' credit profile.

FISCAL RISKS ARE EXACERBATED BY ENTRENCHED POLITICAL POLARIZATION UNDERSCORING RISING POLITICAL RISK

At a time of weakening fiscal strength, there is an increased risk that political divisions could further constrain the effectiveness of policymaking by preventing policy action that would slow the deterioration in debt affordability. These risks underscore rising political risk to the US' fiscal position and overall sovereign credit profile.

Recently, multiple events have illustrated the depth of political divisions in the US: renewed debt limit brinkmanship, the first ouster of a House Speaker in US history, prolonged inability of Congress to select a new House Speaker, and increased threats of another partial government shutdown due to Congress' inability to agree on budgetary appropriations. In Moody's view, such political polarization is likely to continue. As a result, building political consensus around a comprehensive, credible multi-year plan to arrest and reverse widening fiscal deficits through measures that would increase government revenue or reform entitlement spending appears extremely difficult.

While the US' Aaa rating takes into account relative weaknesses with regards to the quality of the country's legislative and executive institutions and fiscal policy effectiveness compared to other Aaa-rated sovereigns, there is a risk that these weaknesses take greater credit relevance because the deteriorating debt affordability trend would call for a more significant and effective fiscal policy response.

In particular, the US' lack of an institutional focus on medium-term fiscal planning, either through legislated fiscal rules aimed at improving the fiscal balance or general bipartisan consensus on the need for fiscal consolidation, is fundamentally different from what is seen in most other Aaa-rated peers such as in Government of Germany (Aaa stable) and Government of Canada (Aaa stable). Meanwhile, the more short-term focus of US fiscal policymaking, along with limited fiscal flexibility - because a very large portion of nondiscretionary budgetary spending is on mandatory entitlement programs and debt service (around 75% of total outlays), exacerbates already fractious bipartisan politics around a relatively disjointed and disruptive budget process. As annual debt service costs continue to rise, fiscal flexibility will diminish even further.

Five minutes later, US Deputy Treasury Secretary Wally Adeyemo comments in emailed statement to Bloomberg:

“While the statement by Moody’s maintains the United States’ Aaa rating, we disagree with the shift to a negative outlook. The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset”

“The Biden administration has demonstrated its commitment to fiscal sustainability, including through the more than $1 trillion in deficit reduction included in the June debt-limit deal as well as President Biden’s budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade”

I am among those who think this cannot go on without some "adjustments"--nor do the three credit agencies: Fitch, S&P, and Moody's--all have downgraded US credit. Among the options are increase taxes, reduce USG payments like Social Security, and/or repudiate federal debts. None are attractive. While inflation may come down over time, the overall cost of living (taxes, consumer debt, etc) may continue to rise. The best we as individuals can do is keep spending in check, save where we can, and minimize debt. And choose much better people to serve in Washington and statehouses.

There should be more attention and detail on who is collecting the debt plus interest, and benefits from interest rate increases.
Not much talk about that in the news, they might want to consider lowering the payouts instead of cutting stuff like Social Security.
Lots of things going on behind the scene of the National debt issue.
Just print enough money to pay off the loans instead of letting it drag out.

quote:

There should be more attention and detail on who is collecting the debt plus interest, and benefits from interest rate increases.
Not much talk about that in the news, they might want to consider lowering the payouts instead of cutting stuff like Social Security.

Interest rates are market driven.
Yes, the Federal Reserve does set rates to a certain extent (loans to its member banks) but not even the Fed can repeal the laws of economics.
Ultimately, all loans are priced on perceived risk.

quote:

Just print enough money to pay off the loans instead of letting it drag out.

The idea of the $1 trillion coin has been floated. But printing money is what causes inflation. Sure, we could "pay off" all of the debt, tomorrow, with newly printed money... but that's really just a form of repudiation. All of your existing dollars would become worthless nearly overnight.

Most of the lenders are foreign Countries, I see payoff no different than paying Billions for hostages.

quote:

Originally posted by rizzle:
Most of the lenders are foreign Countries, I see payoff no different than paying Billions for hostages.

Foreign holders are about 30%

Foreign Holders of Federal Debt

Foreign ownership of U.S. debt, which includes both governments and private investors, is much higher now than it was about 50 years ago. In 1970, total foreign holdings accounted for $14.0 billion, or just 5 percent, of DHBP. As of December 2022, such holdings made up $7.3 trillion, or 30 percent, of DHBP. Of that amount, 54 percent was held by foreign governments while private investors held the remaining 46 percent. Because Treasury securities are backed by the full faith and credit of the U.S. government, creditors including foreign investors often view lending to the United States as a safe investment.



https://www.pgpf.org/blog/2023...o-owns-all-that-debt

The thing I don't understand is who is getting the interest profit on the Fed reserve 6 (thousand) billion part of the "loan" that they have. I'm not an economics expert but I wish I could understand how they charge themselves for a loan. I also understand that the dollar is not backed by anything and is a perceived value, therefore this national debt is no big deal to those that control it.

Seems like the politicians were counting on interest rates staying near zero forever but they lost that bet. Now in a big catch 22 where fed is raising rates to fight inflation but that feeds inflation by increased interest debt payments on the astronomical debt.

I am amazed gold has not made a big move to the upside recently. I have no idea how any of this will end but I don't think it will be anything good for the vast majority of us. I guess we will find out soon enough i a nation can borrow its way to long term prosperity or not.

Infinite debt is sustainable if there is never the intent to pay it back

Debt is always paid off by someone. Right now inflation is making us pay it through devaluing our savings and paychecks. It is a time tested and well loved tactic of politicians.

Based on number of tax returns filed in 2022, $1 trillion in interest is $6743 per taxpayer

quote:

Originally posted by RogB:
…Entitlements are the third rail. No one's gonna touch it.

The entitlements concern me more than debt.
Print more money, add more zeros.

As stated elsewhere in this thread, something on the order of, if they don’t intend to pay it back it’s not really a problem.

The shell game and redistribution of wealth, concerns me more than the $debt number.
Who gets what portion of the pie is where the real battle lies.

Another good comment in this thread, figure out where the politicians put their wealth and do the same.

https://en.m.wikipedia.org/wiki/Herbert_Stein

At some point I think ‘Stein’s Law’ will manifest itself. I have no idea on when that will be. It’s a little different than the family financing life with credit cards, but similar principles.

quote:

Originally posted by nhtagmember:
Infinite debt is sustainable if there is never the intent to pay it back

Interesting thought. All of my adult life I've been hearing people predicting the implosion. And, it never happens. In 2023 the government took in 4.44 trillion, and spent 6.13. Doesn't seem so bad, but add that up over 50 years. Seems to me if you're running a mortgage and two car payments an individual runs a far steeper debt/income ratio.

I think one thing is perfectly clear. The government isn't interested in changing a damn thing. I think we're quickly approaching a point where the government is going to say, "Look, if you want all these goodies you're going to have to let us raise tax rates."

The theory used to be that we could "grow our way out" of the debt. As the population grows, and as productivity increases, there is more wealth created which can pay off old debt.

Think of it this way. One member of the family works, supporting 3 others. They have some level of spending which results in a slight deficit, and they'vd accumulated some debt. Then, the other 3 go out and get jobs. All that extra wealth can pay off the old debt.

The problem has been that the government (at every level) increases spending faster than the population and productivity increase. That's in terms of static dollars, ignoring inflation. If the government kept spending level, we would have been out of debt decades ago.

The fedgov loves inflation because it makes old debt cheaper to pay off. That's why they have a 2% goal for inflation rather than 0%. There is no reason inflation couldn't be 0% forever as long as the money supply is kept in lock step with overall productivity and consumption.

Basically, the politicians have all been kicking the can further down the road than the length of their political careers.

I see no way to sustain the actual debt.

But I see no way that anyone will create economic chaos to force repayment.

One imperial edict to shut the door on imports from a certain overpopulated country would destroy that nation economically.

So, those debts will likely not be repaid.

I wish we were living within our means. Elect me president and I will make it happen.