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US National Debt Tops $30 Trillion, No Problem Says Treasury Secretary Janet Yellen

On January 31, 2022, the US national debt exceeded $30 trillion for the first time. It's a problem, no matter what Yellen says.
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Image DebtClock.Org

Image DebtClock.Org

Debt to the Penny, Updated Every Second

If you want to see US national debt to the penny, updated every second, please visit USDebtClock. It's quite fascinating. 

Yellen Chimes In

The Wall Street Journal notes these statements by Janet Yellen:

  • “It’s important to evaluate debt sustainability in the context of the interest-rate environment.” 
  • The interest burden of U.S. debt is “very manageable” because of low interest rates.

What a hoot! 

Expected Rate Hikes

Image snip from a Bloomberg video.

Image snip from a Bloomberg video.

As noted in Fed Doves Warn Against Jamming on the Brakes, Bank of America believes the Fed will get in seven rate hikes this year with more coming next year. 

Pondering the Stunning Growth In Rate Hike Bets and Predictions

Chart CME Fedwatch, annotations by Mish

Chart CME Fedwatch, annotations by Mish

On January 29, I was Pondering the Stunning Growth In Rate Hike Bets and Predictions

Projection Synopsis

  • Bank of America amazingly projects 7 hikes, one at every meeting in 2022 plus 4 more in 2023. That would put the Fed Funds Rate at 2.75% to 3.00% at the end of 2023.
  • BNPP projects 6 this year and 3 more in 2023. That would put the Fed Funds Rate at 2.25% to 2.50% at the end of 2023.
  • Deutsche Bank and Wells Fargo project 5 this year and 3 more in 2023. That would put the Fed Funds Rate at 2.0% to 2.25% at the end of 2023.
  • Barclays and UBS project 3 this year with no forecast for 2023.

Pretend Math 

  • Let's pretend the Fed gets in 7 rates hikes in 2022 and 4 more in 2023. 
  • That would put short term interest rates at about 2.75%.
  • 2.75% of $30 trillion is $825,000,000,000. That's $825 billion interest, per year, and rising, because the debt keeps piling up.

About $6.5 trillion of that $30 Trillion is inter-agency debt according to the US Treasury Debt-to-the-Penny site. Inter-agency debt includes Social Security.

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If we subtract that debt, interest on $23.5 Trillion would be $622.75 billion per year at at 2.75%.

One of the reasons Senator Joe Manchin refused to support President Biden's Build Back Better plan was concern over the national debt.

Hmm. I see Manchin needs a fireside chat dinner with Janet Yellen. 

Lacy Hunt Chimes In 

For a not so rosy and far more realistic opinion on debt, please see Lacy Hunt: Negative Real Rates Are a Strong Recession Warning

  • "Based on empirical evidence, theory and peer reviewed scholarly research, the massive secular increase in debt levels relative to economic activity has undermined economic growth, which has in turn, served to force real long-term Treasury yields lower. This pattern has been evident in both the United States and the more heavily indebted Japanese and European economies."
  • "When governments accelerate debt over a certain level to improve faltering economic conditions, it actually slows economic activity. While governmental action may be required for political reasons, governments would be better off to admit that traditional tools would only serve to compound existing problems. For a restless constituency calling for quick answers to economic distress and where inaction would be likened to an uncaring and insensitive attitude, this is a virtually impossible task."
  • "In 2022, several headwinds will weigh on the U.S. economy. These include negative real interest rates combined with a massive debt overhang, poor domestic and global demographics, and a foreign sector that will drain growth from the domestic economy. The EM and AD economies will both serve to be a restraint on U.S. growth this year and perhaps significantly longer. The negative real interest rates signal that capital is being destroyed and with it the incentive to plough funds into physical investment."

That's just a small portion of what Hunt has to say. Please give my post a look if you missed it, or another look if you already have. 

This debate is now over. 

Senator Manchin should skip a fireside chat dinner invitation from Janet Yellen should she offer one. 

And With Nearly Everyone Looking the Other Way, It's Time to Discuss Recession, which by the way is sure to increase the budget deficit and therefore national debt.

Tick tock!

This post originally appeared at MishTalk.Com

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