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Brian Villanueva's avatar

The Manhattan report is interesting, but misses the mark in a few places.

"An analysis of CBO data reveals that every percentage point by which interest rates exceed the CBO projected rates would increase government interest costs by $30 trillion over 30 years."

This is technically true, but obscures a lot. The real issue is the maturity curve of US debt. It's the same problem as your mortgage: 30 yr fixed vs 1 year adjustable. If our federal debt is mostly in 30-year T-Bills, we have a long time before we have to worry about it. If it's in 1-year notes, you're problem arrives much faster.

Our actual maturity schedule is below (in millions):

2021 $4,032,609

2022 $3,423,576

2023 $2,744,713

2024 $1,907,549

2025 $1,543,758

2026 $1,435,775

2027 $1,002,829

2028 $1,031,247

After 2028, the numbers are all below $1T.

America will need to refinance $17T in debt in the next 7 years. The average interest rate on all this debt is currently 1.06%. When you refinance the debt, you must take out new debt at current rates, so what happens when we do that?

Most of the debt is currently in 5-7 year notes. The US Govt can borrow 5-Year T-Notes today at 1.5%. That means that, even with no changes, each refi will up our interest expense by 50% (we were paying 1% and now we'll pay 1.5%). This alone will increase our interest costs by $20B this year, rising to about $100B annually by 2028 -- not a rounding error, but also not particularly significant. Particularly with inflation making our money worth less every month.

What happens if rates were to double to 3%? Our interest cost this year rises by $80B this year with gradually larger increases until $300B in 2028. For perspective, that's about a third of the defense budget or all of the VA. Those are numbers to get worried about, and they happen pretty quickly.

The Manhattan report overstates the danger (these are not catastrophic numbers) but also overstates the time horizon (the poop hits not in 2051 but before 2030.)

With inflation running high, the Federal Reserve is going to face an impossible choice: A) stop buying treasuries to raise rates and blow up the budget within a few years, or B) keep goosing the money supply with treasury purchases, and watch the currency implode as inflation takes off. Janet Yellen and Jerome Powell are in a tough spot.

(No, my numbers are from an analysis I did about 4 months ago just for my own edification, so they're a little out of date. Things have not improved though.)

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N.S. Lyons's avatar

Great details, thanks!

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Chris Gast's avatar

#6: We all seem aware of how big this bubble is. We're all rising high on it. Do we simply not have the will to do anything about it? People seems horrifyingly nonplussed about this financial disaster. At least people are starting to wake up to the demographic disaster, but in many ways aren't they the same thing?

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e.pierce's avatar

As a labor activist (populist, not right/not left) I saw $10s million of gross fraud in federal grants in higher education.

Organizational toxicity and dysfunction had a very heavy negative emotional impact on the workers in the grant programs. Management (admins and faculty) were insane abusers of power, clinically narcissistic and sociopathic. 99% "leftists"

Audit processes were completely compromised. Zero accountability.

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Pickles's avatar

https://johnwaters.substack.com/p/the-economy-of-permanent-emergency-5af

Highly recommend this writer and this article in particular

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David A. Burack's avatar

I'm going to commit that poem to memory.

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