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.
We calculated this by multiplying the average interest rate on marketable US Treasury debt by the $26.003 trillion in marketable US debt which nets off to $805 billion, and adding to this non-marketable debt interest and which in turn is an additional $222 billion in interest.
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.
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.... ... bringing the total to $33.6 trillion, more than the combined GDPs of China, Japan, Germany, and India.
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!".
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. Finally, as we explained yesterday, 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.
No comments:
Post a Comment