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

February 2, 2022

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2:29 pm

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51 comments

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Economics

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

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*

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.

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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51 Comments

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KidHorn

4 years ago

Part of the debt is held by the FED. The FED gives most of their collected interest back to the treasury. Last year they gave back $86b.

blacklisted

4 years ago

…and what happens to the interest expense on all the dollar-based debt broad when the dollar rises because it’s the only game in town until it all blows up?

StukiMoi

4 years ago

Another example of why confusing financial accounting with economics, is something done by idiots and idiots only.

Of course debt incurred in what is effectively monopoly money to the one who can print them, is “no problem.”

But just as of course, printing more and more of what is mere claims to wealth, without adding any real wealth, does 100% nothing whatsoever, other than redistribute whatever existing real wealth there is, from those who created it in the first place.

And the reason those guys did create t, is exactly because those are the guys with the ability to create wealth.

And while it may not appear problematic on the sort of narrowly scoped financial statement that stupid people (as well as children playing “accountant” without knowing what it really entails) are able to comprehend: Transferring more and more real wealth; from people who can create it, to people who can’t; is very much an economic problem. No amount of genuinely unintelligent and vapid idiots claiming otherwise, can ever change that.

BDR45

4 years ago

After the civil war of 2030, the new government will cancel the debt, so, in that respect, the 30 trillion really isn’t something to worry about except if you own government debt. I keep stocking up on Mexican pesos, as they eventually will hold their purchasing power better than dollars. Good luck to everyone.

Jojo

4 years ago

US Debt Visualized in $100 Bills

https://demonocracy.info/infographics/usa/us_debt/us_debt.html

Casual_Observer2020

4 years ago

The debt can simply be Monetized with electronic payments. If you think real estate is cheap in Timbuktu (or anywhere else ) then buy. I predict the Fed will monetize the debt to the point where it doesn’t matter but inflation is a monetary phenomenon anywhere and everywhere.

Eddie_T

4 years ago

The Fed debt is collateralized with our bank deposits now. Since 2008, actually.There is an entire new layer of debt leverage in the monetary system that didn’t used to be legal or possible. It changed with the Financial Services Regulatory Relief Act of 2006…. passed by Congress and fast-tracked into law in 2008.

With so many ways for the entire credit system of the world to blow up, that might be a valid reason to own something more tangible than FRN’s.

Qpoe

4 years ago

At the rate we are going by 2028 half of our budget will go towards interest to pay towards the debt which will continue to grow.

Over the next couple of years it will be the equivalent of opening your mortgage statement to see that not only is the payment that you made last month half of your paycheck but you keep refinancing at a higher rate AND pulling out more money each month.

Who is BofA fooling? Who is Yellen fooling? Who is Powell fooling? I don’t think the people with their hands out believe these guys.

Is anyone else paying attention?

Jojo

4 years ago

Reply to Qpoe

Which is exactly why the FED fights so hard, making so many excuses to keep interest rates as near to zero as possible. 2+2 always equals 4!

whirlaway

4 years ago

Ah! The debt clock. The one that right wingers trot out whenever they are not in power!

Carl_R

4 years ago

Reply to whirlaway

It would certainly be nice if at least one party was genuinely fiscally prudent, wouldn’t it?

Jojo

4 years ago

It’s just a number. You don’t really think that they are ever actually going to make any real dent in reducing it?

Eddie_T

4 years ago

Reply to Jojo

It will be inflated away with financial repression or the US will become a 3rd world country.

Carl_R

4 years ago

Reply to Jojo

They will never pay back the debt, obviously. However, they are perfectly capable of reducing the debt-to-GDP ratio.

https://www.longtermtrends.net/us-debt-to-gdp/

During wars, the ratio usually spiked upwards, but then, as a country we reduced it in the following years. That held true until Reagan-Bush blew it up in the eighties. Clinton reduced the ratio again in the 90’s, but it started back up again under Bush and exploded under Obama. It didn’t increase too much under Trump at first, but the last couple of years have seen explosive growth in debt-to-GDP. Can we reduce it again? Or, as the interest rate rises, will the interest payments burden the economy and lead us to debt that spirals upwards until we collapse?

Mish

4 years ago

Just added this snip thanks to Mr Practical.

About $6.5 trillion of that $30 Trillion is inter-agency debt according to the US Treasury https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny site.

Inter-agency debt includes Social Security.

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

Doug78

4 years ago

Reply to Mish

The Fed also owns $2.5 trillion of treasuries so we can take that off too because the interest payments would just go to the Treasury.

Tony Bennett

4 years ago

Reply to Doug78

You win.

But treasuries held $5.7 trillion. Balance mostly mbs along with some other stuff.

Doug78

4 years ago

Reply to Tony Bennett

Is it so high? I thought it was only 2.5 trillion.

Tony Bennett

4 years ago

Reply to Doug78

https://www.federalreserve.gov/releases/h41/20220127/

Doug78

4 years ago

Reply to Tony Bennett

So now we are down to $17.8 Trillion.

Tony Bennett

4 years ago

Reply to Mish

If you want to go further into the weeds …

Federal Reserve remits its “profit” from balance sheet back to US Treasury. Current balance sheet almost $9 trillion. FY2021 remitted a shade more than $100 billion. Table 4.

https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0921.pdf

ColoradoAccountant

4 years ago

Reply to Mish

The Treasury still has to pay interest to those agencies, because it is debt owed by the general government to those agencies who have to pay their bills.

Irondoor

4 years ago

Speaking of the “debt held by the public”, China owns more than $1Trillion of our debt. So, the higher our interest rates go, the more they earn. Talk about shooting ourselves in both feet. That $1 Trillion was payment for Chinese exports. They use the $$ to steal our intellectual property and increase their military capability.

Mr Practical

4 years ago

You can’t do that interest calculation on $30 trillion. Of the total, $6.5 is held by intragovernmental accounts like SSI, the Medicare TF, and Civil Service and Military Retirement trust funds. It’s the Debt Held by the Public number ($23.5 trillion is still a LOT and growing unsustainably) that’s meaningful.

Thanks

Mish

4 years ago

Reply to Mr Practical

Thanks Mr. P

ColoradoAccountant

4 years ago

Reply to Mr Practical

Not true, because the Treausury doesn’t have the cash equal to those non-public debts. It still has to borrow again in the public market to make the monthly SSA’s payments in excess of SSA’s monthly inflows.

Tony Bennett

4 years ago

Reply to ColoradoAccountant

You are almost correct. Social Security still runs a surplus (barely). When it hits a deficit US Treasury will have to borrow in open market and / or raise taxes.

Medicare? Now, that is where the current problem lies.

Casual_Observer2020

4 years ago

Total debt interest for all countries was $11T in 2021. At some point the trillions are just bank transfers right ?

300k job cuts from ADP private payroll numbers. The labor market could get rolled quickly.

RonJ

4 years ago

Yellen: “It’s important to evaluate debt sustainability in the context of the interest-rate environment.”

It is important to evaluate the fact that interest-rate environments change. Then the debt becomes unsustainable. Back in Biblical days they used to have something called the year of jubilee. Cycles repeat.

Bam_Man

4 years ago

$30 Trillion in debt is “no problem” when you have no intention of ever paying off a dime of it.

Carl_R

4 years ago

Reply to Bam_Man

That is only true if it is denominated in your own currency. Once investors are unwilling to accept that, it become a big problem.

OUdaveguy

4 years ago

Some issues worth pointing out:

1) a large part of the $30T debt is from overseas military adventurism that we have nothing to show for except deaths, debacles, and ill will.

2) Rate hikes will quickly make interest on the debt balloon to unsustainable levels; why is nobody talking about this?

3) Why would anyone believe someone who works in Washington DC? DC is the source of all our woes and problems; there are no solutions that will come out of The Swamp; power must be transferred from DC to local government.

4) How is the high inflation and debt affecting so many Americans that were already living on the ragged edge of bankruptcy and financial ruin? Will it take much more to push them off the cliff?

5) How much personal debt is being rapidly accumulated as law abiding citizens find themselves being fired for refusing mRNA shots? First it was healthcare, police, firemen, and first responders; now it’s Fortune 500 companies and corporations like Hershey’s destroying families and livelihoods in an absolutely shameful display of overreach and evil. Violent criminals are being ignored by prosecutors while the most law abiding and productive citizens are terminated at a frightening rate. Inexcusable under any circumstances.

Anon1970

4 years ago

What did you expect Yellen to say?

thimk

4 years ago

Well the sad part is 30 T of debt but not much to show for it here state side . Musical tribute appropriate :

Sixteen tons (30 tons) T. E. FORD >

https://www.youtube.com/watch?v=pLVtJkpl_ug

Anon1970

4 years ago

Reply to thimk

Well in the past two decades we had our wars in the Middle East and all of the jobs they created at defense contractors. Let’s be honest. The US is a declining superpower.

Tony Bennett

4 years ago

Friday’s employment number should be noteworthy.

Expected … +150K

ADP (private) employment out this morning.

Expected … +207K

Actual … -301K

Karlmarx

4 years ago

Maybe its time that the orthodoxy in the profession finally recognize that Keynesianism is something that is merely the ramblings of some defunct economist.

Rbm

4 years ago

Everybody likes a party but know body wants to clean up afterwards. It seems the normal for the last 20 or so years. Stimulate the economy in down times. Dont repay the debt accumulated when times turn good. Goes along with the know body should lose anything in a recession.

Carl_R

4 years ago

Because of the huge efficiency gains that have come over the last fifty years from globalization, governments have been able to run massive deficits without stimulating inflation, and indeed, inflation and interest rates have fallen steadily even in the face of sizeable deficits. This result has surprised and confused people who have been projecting inflation for years. Yet, the efficiency gains from globalization seem to be largely behind us, and we seem to be moving back towards what has been normal for all of history, that being that government deficits eventually lead to inflation.

When a government spends money, it must be paid. It can be paid in three different ways:

1. Tax receipts

2. Inflation

3. Negative real interest rates

Thanks to the efficiency gains of the last fifty years, inflation has been low in the face of deficits, but this has led to a false belief that “deficits don’t matter”. They don’t, until they do, and then they matter a great deal. Can we find a new way to achieve massive efficiency gains? Or, is it time to pay the piper?

BowserB46

4 years ago

Reply to Carl_R

Excellent points, Carl. Of course the efficiency gains really amount to manufacturing moving to China and third world countries. I don’t know that some of that stuff could get any cheaper. Look at mdse on Amazon. A lot of items are sold only in quantities you don’t need, just because it’s not worth packaging and shipping “one” for fifteen cents. And the green people must have nightmares over Amazon battery sales. I’ll bet a trillion batteries go into landfills every year in the U.S. now, just because they’re so cheap no one wants to bother with rechargeables.

$15 an hour federal minimum wage–and all the hourly wages currently between $15 and $25 or so increasing accordingly–seems likely to cause most of the rest of U.S. manufacturing to leave. Meanwhile, the Democrats controlling government will give amnesty to 29 million illegal aliens (plus the additional million a year being invited in), followed by 29 million new applications for SNAP, Medicaid, free cell phones, free housing, EIC, and the new payments for having more children. You think $30 trillion in debt is a lot? A few more years and this will seem like the good old days when we only owed $30 trillion.

So where to invest? I’m thinking ammunition. I’ve got around 7,500 rounds of 9mm, 5.56mm, .45ACP, .22LR, and 20-gauge that’s already worth at least double what I paid for it. The Democrats are proposing a new ammo tax, which will make it more expensive than it is already. Quality ammunition stored properly is good for 50 years or more. Oh, and yes I have at least one gun in each of those calibers bought in a private transaction, so ATF doesn’t know about them.

TexasTim65

4 years ago

Reply to BowserB46

Are you planning to sell those rounds for a profit? Otherwise they are in essence a deteriorating resource (over 50 years) similar in fashion to how paper money deteriorates over time due to inflation/printing.

If the SHTF, and you are in any kind of population center, having 7500 rounds isn’t really going to help you as much as you think from the zombie hoards. Your only real chance is to be way out in the middle of nowhere someplace.

Roto1711

4 years ago

Reply to BowserB46

The ATF knows now. 😂

TexasTim65

4 years ago

Reply to Carl_R

Governments have been able to run massive deficits over the past 50 years because they decoupled from the gold standard, not because of huge efficiency gains.

Efficiency gains AND abundant cheap resources (energy + raw materials + offshore labor) has kept the supply/demand curve more or less in check (ie more demand was met with the equivalent amount of supply at the same price) which has meant low inflation.

However the era of cheap resources is coming to an end due to finite limits in the physical world (raw materials + raw materials).

Carl_R

4 years ago

Reply to TexasTim65

To clarify, my point was not that that governments were able to run deficits because of efficiency gains, but rather that they could run deficits without creating inflation because of efficiency gains. Decoupling from gold certainly facilitated the actual deficits, but does not explain why the deficits did not lead to massive inflation. Certainly inflation can, and does exist in countries not on the gold standard.

dpy

4 years ago

What no one is talking about is what does the Fed do wham the interest on their trillions of assets (call it collateral) becomes uncollectible? I think that is eventually going to be the case.

Tony Bennett

4 years ago

To be fair the focus should be on debt held by public (which includes Federal Reserve).

$24 trillion

$6 trillion held by intragovernment trust funds (mainly social security). Social Security securities are NON MARKETABLE (just IOUs).

ColoradoAccountant

4 years ago

Reply to Tony Bennett

But the Treasury has to pay interest to Social Security. When SSA sends me my check and I cash it, the Treasury has to find the cash to cover my check. It has to borrow the cash in the public debt market, because the Treasury already took all of SSA’s cash to pay for the Vietnam War.

vboring

4 years ago

What do you do when you hit a recession while in full stimulus mode?

Fed funds are at zero, we’re deficit spending like it is a world war, and have the debt to prove it.

Tony Bennett

4 years ago

Reply to vboring

“What do you do when you hit a recession while in full stimulus mode?”

…

Got popcorn?

Actually, you pose a great question. IF a recession hits (or threatens) and Congress follows normal playbook of massive fiscal stimulus (or Federal Reserve ramps monetary policy) … it will only exacerbate the entrenching of inflation.

At SOME point “they” will have to allow a HARD recession to rebalance misallocation of resources … or run risk of going “venezuela”.

Carl_R

4 years ago

Reply to Tony Bennett

I don’t see any chance that Democrats will take any actions that could lead to a recession. If that leads to continued increases in inflation, that may lead to some changes in 2024.

Tony Bennett

4 years ago

Reply to Carl_R

(imo) current inflation will send economy into brick wall (recession) sooner rather than later.

Any large stimulus out of DC will only provide a small can kick … with added cost of making inevitable recession worse.

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

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