{"id":1591072,"date":"2022-08-05T13:01:59","date_gmt":"2022-08-05T17:01:59","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1591072"},"modified":"2022-08-05T13:02:54","modified_gmt":"2022-08-05T17:02:54","slug":"rising-interest-rates-risk-further-blowing-up-the-federal-budget","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/rising-interest-rates-risk-further-blowing-up-the-federal-budget\/","title":{"rendered":"Rising Interest Rates Risk Further Blowing Up the Federal Budget"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"float:left\"><div class=\"counts mashsbcount\">20<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Frising-interest-rates-risk-further-blowing-up-the-federal-budget%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1591072&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><figure class=\"wp-block-image alignwide size-full\"><\/figure>\n<p><em>Please Follow us on <\/em><a href=\"https:\/\/gab.com\/CreativeDestructionMedia\"><em>Gab<\/em><\/a><em>, <\/em><a href=\"https:\/\/www.minds.com\/LToddWood\/\"><em>Minds<\/em><\/a><em>, <\/em><a href=\"https:\/\/t.me\/CreativeDestructionMedia\"><em>Telegram<\/em><\/a><em>, <\/em><a href=\"https:\/\/rumble.com\/c\/CDMedia\"><em>Rumble<\/em><\/a><em>, <\/em><a href=\"https:\/\/tv.gab.com\/channel\/CreativeDestructionMedia\"><em>Gab TV<\/em><\/a><em>, <\/em><a href=\"https:\/\/gettr.com\/user\/cdmedia\"><em>GETTR<\/em><\/a><em>, <\/em><a href=\"https:\/\/truthsocial.com\/@CDMedia\"><em>Truth Social<\/em><\/a><em>\u00a0\u00a0\u00a0\u00a0<\/em><\/p>\n<p><em>Reprinted with permission <a href=\"https:\/\/mises.org\/wire\/rising-interest-rates-may-blow-federal-budget\">Mises Institute<\/a> <a href=\"https:\/\/mises.org\/profile\/jeff-deist\">Jeff Deist<\/a><\/em><\/p>\n<p>In fiscal year 2020, at the height of covid stimulus mania, Congress managed to spend\u00a0<a href=\"https:\/\/www.cbo.gov\/publication\/57170\" target=\"_blank\" rel=\"noreferrer noopener\">nearly twice<\/a>\u00a0what the federal government raised in taxes.<\/p>\n<p>Yet in 2021, with Treasury debt piled sky high\u00a0and spilling\u00a0over $30 trillion, Congress was able to service this gargantuan obligation with interest payments of less than $400 billion. The total interest expense of $392 billion for the year represented only about 6 percent of\u00a0the\u00a0<a href=\"https:\/\/datalab.usaspending.gov\/americas-finance-guide\/spending\/#:~:The%20government%20spends%20money%20on,people%20of%20the%20United%20States.\" target=\"_blank\" rel=\"noreferrer noopener\">roughly $6.8 trillion<\/a>\u00a0in federal outlays.<\/p>\n<p>How is this possible? In short: very low interest rates. In fact, the average weighted rate across all outstanding Treasury debt in 2021 was\u00a0<a href=\"https:\/\/fiscaldata.treasury.gov\/datasets\/average-interest-rates-treasury-securities\/average-interest-rates-on-u-s-treasury-securities\" target=\"_blank\" rel=\"noreferrer noopener\">well below 2 percent<\/a>.\u00a0As the chart below shows, even\u00a0<a href=\"https:\/\/www.treasurydirect.gov\/govt\/reports\/pd\/histdebt\/histdebt_histo5.htm\" target=\"_blank\" rel=\"noreferrer noopener\">dramatically rising federal debt in recent years<\/a>\u00a0did not much hike Congress\u2019s debt service burden.<\/p>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/08\/statistic_id246439_interest-expense-on-us-public-debt-2011-2021_1.png\" alt=\"interest expense chart\" title=\"\" \/><\/figure>\n<p>This is an exceedingly\u00a0happy arrangement for Congress. Debt is always more popular than taxes for the same reason starting a diet tomorrow is more popular than starting today. Austerity does not sell when it comes to retail politics; spending trillions today while merely adding to what seems like a nebulous, faraway debt definitely\u00a0<em>does<\/em>. And American lawmakers are uniquely fortunate in this regard. As French finance minister\u00a0Val\u00e9ry Giscard d\u2019Estaing infamously announced in the 1960s, the\u00a0Bretton Woods monetary system created\u00a0\u201cAmerica\u2019s exorbitant privilege.\u201d He understood how the US dollar\u2019s status as the world\u2019s reserve currency would allow America\u00a0to effectively export inflation to its hapless trading partners while maintaining cheap imports at home. But he may not have fully grasped\u00a0the\u00a0<em>political<\/em>\u00a0privilege which would accrue to Congress.<\/p>\n<p>Is this privilege sustainable? That may well be the most important political question of the twenty-first century.\u00a0As Nick Giambruno\u00a0<a href=\"https:\/\/internationalman.com\/articles\/a-rare-paradigm-shift-with-huge-implications-5-reasons-why-its-imminent\/\" target=\"_blank\" rel=\"noreferrer noopener\">explains<\/a>, our forty-year experiment in relentlessly lower interest rates may soon end regardless of what the Fed does. Markets and geopolitics are powerful forces. Inflation, huge projected deficits, economic sanctions on Russia, oil disruptions, and a diminished appetite around the world for propping up Uncle Sam forever all exert upward pressure on Treasury rates. The Fed proved it can and will serve as market maker and backstop for US Treasurys, with its sordid QE (quantitative easing) bond purchases after the Great Recession and its deranged response to covid. But it cannot force investors, even crony\u00a0institutional investors, to buy American bond debt at rates well below inflation forever. This is not hypothetical; Giambruno notes how certain Treasury yields quietly rose five time just since the absolute lows of 2020.<\/p>\n<p>If Treasury rates continue to rise, and rise precipitously, the effects on congressional budgeting will be immediate and severe. Even if we laughably assume total federal debt remains static at around $23.8 trillion (the publicly held portion of the $30 trillion), interest rates of merely 2 or 3 percent will cause interest expense to rise considerably. Average weighted rates of only 5 percent would cost taxpayers more than $1 trillion every year. Historically, average rates of 7 percent swell\u00a0that number to more than $1.5 trillion. Rates of 10 percent\u2014hardly unthinkable, given the Paul Volcker era of the late seventies\u00a0and early eighties\u2014would cause debt service to explode to over $2.3 trillion.<\/p>\n<p><strong>Interest on debt in the hands of the public at different interest rates (billions)<\/strong><\/p>\n<figure class=\"wp-block-table\">\n<table>\n<tbody>\n<tr>\n<td>Total debt in the hands of the public<\/td>\n<td><a href=\"https:\/\/fiscaldata.treasury.gov\/datasets\/debt-to-the-penny\/debt-to-the-penny\" target=\"_blank\" rel=\"noreferrer noopener\">$23,874. 2<\/a><\/td>\n<\/tr>\n<tr>\n<td>Interest rate<\/td>\n<td>Interest expense<\/td>\n<\/tr>\n<tr>\n<td>1%<\/td>\n<td>$238.70<\/td>\n<\/tr>\n<tr>\n<td>2%<\/td>\n<td>$477.50<\/td>\n<\/tr>\n<tr>\n<td>3%<\/td>\n<td>$716.20<\/td>\n<\/tr>\n<tr>\n<td>4%<\/td>\n<td>$955.00<\/td>\n<\/tr>\n<tr>\n<td>5%<\/td>\n<td>$1,193.70<\/td>\n<\/tr>\n<tr>\n<td>6%<\/td>\n<td>$1,432.50<\/td>\n<\/tr>\n<tr>\n<td>7%<\/td>\n<td>$1,671.20<\/td>\n<\/tr>\n<tr>\n<td>8%<\/td>\n<td>$1,909.90<\/td>\n<\/tr>\n<tr>\n<td>9%<\/td>\n<td>$2,148.70<\/td>\n<\/tr>\n<tr>\n<td>10%<\/td>\n<td>$2,387.40<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p>Again, even 5 percent average rates would\u00a0<em>cause debt service to become the single biggest annual expenditure for Congress<\/em>\u2014ahead of Social Security ($1.2 trillion), Medicare ($826\u00a0billion), and the Department of Defense ($704 billion). The\u00a0<em>starting point\u00a0<\/em>for budget makers every year would be an interest expense totaling nearly half of realistic tax revenue. And keep in mind that these figures are for the\u00a0<em>existing<\/em>\u00a0federal debt, exclusive of the vast future deficits that are almost dead certain to happen. Seniors like entitlements, and the percentage of Americans over sixty-five is set to double by 2050. Republicans and Democrats like war, busy as they are installing more US troops in Poland and envisioning new aircraft carriers to patrol the Mediterranean (yes) and the South China Sea. What happens when the interest-bearing debt is $40 or $50 or $60 trillion?<\/p>\n<p>At some point, given the sheer and utter profligacy of Congress, will the world demand junk bond rates to loan America another dime? Everyone knows the US will never pay its debts except nominally through inflation; everyone knows off\u2013balance sheet entitlement promises cannot be kept in any meaningful way. Spendthrifts get cut off eventually, even those with powerful militaries and hegemonic currencies. This may not happen soon, if for no other reason than that the rest of the world holds trillions of US dollars too. But if American exceptionalism goes the way of the British Empire, this will be the reason why.<\/p>\n<p>During the incontinent George W. Bush administration, Dick Cheney infamously chided Treasury secretary Paul O\u2019Neill with the assertion \u201cReagan proved deficits don\u2019t matter.\u201d We see the same\u00a0<a href=\"https:\/\/mises.org\/wire\/review-stephanie-keltons-deficit-myth\">deluded thinking<\/a>\u00a0today among proponents of modern monetary theory, the idea that sovereign governments can command resources at will. This mentality pervades Congress, which in turn is rewarded by voters who want wars\u00a0and welfare today without thought to\u00a0future generations. They choose to believe the Cheneys and the MMTers, who tell them deficits and debt are essentially costless.\u00a0<\/p>\n<p>But debt and deficits do matter. We are about to find out how much they matter. The good news, and it is very good news, is that Americans soon may enjoy the benefits of compounding interest on savings (our grandparents can explain this to us). Civilization begins and ends with capital accumulation, the very thing politics and central banks attack with impunity. It is beyond time to reward savers and punish Congress.Author:<\/p>\n<p><a href=\"https:\/\/mises.org\/profile\/jeff-deist\">Jeff Deist<\/a>\u00a0is president of the Mises Institute. He previously worked as chief of staff to Congressman Ron Paul, and as an attorney for private equity clients. Contact:\u00a0<a href=\"https:\/\/creativedestructionmedia.com\/cdn-cgi\/l\/email-protection#f8929d9e9e9c9d918b8cb895918b9d8bd6978a9f\">email<\/a>;\u00a0<a href=\"https:\/\/twitter.com\/jeffdeist\" target=\"_blank\" rel=\"noreferrer noopener\">Twitter<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Please Follow us on Gab, Minds, Telegram, Rumble, Gab TV, GETTR, Truth Social\u00a0\u00a0\u00a0\u00a0 Reprinted with permission Mises Institute Jeff Deist In fiscal year 2020, at the height of covid<\/p>\n","protected":false},"author":1,"featured_media":1591140,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1591072","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1591072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1591072"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1591072\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1591140"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1591072"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1591072"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1591072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}