The share of T-bills outstanding, average interest rate paid on the debt, and cash in the Government Checking Account (TGA).
By Wolf Richter for WOLF STREET.
Today, the US national debt jumped by another $61 billion and thereby made it over the $36-trillion mark, to $36.03 trillion, only four months after it had made it over the $35-trillion mark (July 26), and 11 months after it had made if over the $34-trillion mark (December 29), according to data from the Treasury Department today. Trillions are flying by so fast they’re hard to see.
So far this year, the national debt has ballooned by $2 trillion, despite GDP growth that has been well above the 15-year average. That’s the astounding thing, that the government has been racking up these huge debts despite the strongly growing economy. No one wants to even imagine how this debt would balloon if there’s ever a recession with falling tax receipts and surging outlays. It’s just nuts to have this during the good times (flat spots = Congressional debt-ceiling charades):
Debt “Held by the public.”
Of that $36.03 trillion in Treasury securities, $28.69 trillion are “held by the public” in accounts in the US and around the world, in brokerage accounts, by banks, by insurance companies, at financial centers, by central banks, by the Fed, etc., and these securities can be traded in the market.
The remaining $7.34 trillion of the debt are held in federal government pension funds, the Social Security Trust Fund, and other “internal” government accounts, and they’re not traded.
It’s that $28.69 trillion that the government must find buyers for, even as the Fed has been unloading its Treasury holdings as part of QT, having by now gotten rid of $1.43 trillion in Treasury securities.
Investors are enticed to buy Treasury securities because of the yield, and if they lose interest and stop buying, the yield rises until more investors find it appealing and buy. So there will always be demand for US Treasury securities, but the yield may be higher, which eventually becomes a problem for the government because it has to pay the interest.
Foreign investors backed up their trucks and loaded up.
In September, all foreign investors combined (red in the chart below) added $170 billion to their holdings of US Treasury securities – well over half of that increase was by the Euro Area – bringing their holdings to a record $8.67 trillion.
Over the past 12 months, they increased their holdings by $880 billion, or by 15.4%! China and Japan, which have been shedding their holdings, have been replaced by eager buyers in Europe, the UK, India, Canada, Taiwan, in financial centers, etc. (detailed discussion and charts by country here):
The share of Treasury bills.
The amount of Treasury bills outstanding (securities with terms of 1 year or less) rose to a record $6.19 trillion by October 31. Nearly all of them are held by the public.
The T-bills’ share of the debt held by the public was 22.1% at the end of October and has been around 22% all year. During crisis periods, the share was higher: In June 2020, it peaked at 25.5%, and November 2008, after the Lehman Brothers bankruptcy, it peaked at 34.4%. During a crisis, there is a lot of demand for T-bills as secure liquid place to put a lot of cash. The government ramps up auction sales to meet that demand and rake in the cash that it can then blow on bailouts and stimulus payments.
The Fed holds only $195 billion in T-bills but has said that it would gravitate back to more T-bills, from notes and bonds, over the next many years, which was the old normal before 2008.
Possibly in preparation for whatever, Buffett decided to T-bill and Chill, tripling his T-bill holdings in two years to $325 billion. Lots of demand for T-bills, and lots of T-bills:
To replenish the checking account? Nope.
Replenishing the government’s checking account – The Treasury General Account at the New York Fed – was not the reason the debt ballooned because the TGA balance has remained roughly unchanged all year. It actually dipped a little from $743 billion at the start of the year to $738 billion currently.
The periodic debt-ceiling charades in Congress lead to the TGA getting drained perilously close to zero. After the charade concludes, the government replenishes the TGA by borrowing huge amounts. But that hasn’t happened this year. Since about October 2023, the TGA has been roughly at the current level.
So those $2 trillion in increased debt this year actually were spent and went out the door.
The Debt-to-GDP ratio, ugh.
In the third quarter, the US debt-to-GDP ratio ticked up to 120.8% despite the strong growth of GDP, but the debt grew even faster:
The burden of interest payments spiked.
The relevant metric is interest payments as a percentage of tax receipts that are available to pay for the interest (this excludes contributions to Social Security, Medicare, etc., that go directly into the respective trust funds to pay beneficiaries). The BEA provides the relevant measure of tax receipts on a quarterly basis.
The ratio of interest payments as a percentage of tax receipts in Q2 rose to 36.3%, the highest since 1997 – the extent to which interest payments ate up the national income. We’re now eagerly awaiting the Q3 data.
The average interest rate on this debt.
In October, the average interest rate that the Treasury Department paid on its total debt, as new securities replaced maturing older securities, dipped to 3.30%, the second month in a row of declines, and still fairly low by historical averages. But the last few months were the highest since 2010:
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First comment, hooray!!
Sir, while your charts are always great. Can you hypothesize what may happen when the next recession hits? What other rabbits they can pull out of the hat and will it even work next time?
Respectfully
Ram
Like running bitcoin to 10 mill and surprise the NSA miraculously found Satoshi Nakamotos stash? Debt free weeeee.
Would love to see that next bunch of bagholders take over the risk. Might become financially sensible to sift the landfills for that guy’s missing laptop too.
Everyone in the world will say it was greatest and biggest recession ever.
Yes. But what magnitude on the financial earthquake Richter Scale?
Perhaps we just go broke, or bitcoin becomes the new currency. My favorite is gold and producing farm land. Yours?
Just as we jumped from the gold standard to fiat currency, we will move to crypto. The ones that choose to do it will become unimaginably wealthy, while we grumble about the transition and go about our lives a bit poorer, yet still comfortable. Same as it ever was….
Crypto yes, bitcoin no. This jump from 60k to 100k was whale washing after the election to generate FOMO. Remember when the US first moved to chip cards and it took almost 45 seconds to do a transaction? Those would be seen as the good times if bitcoin became the standard. Plus no sane government would switch to a currency they cant control, or at the very least view as stable.
In China now for the first time in a decade. The speed with which the entire consumer economy has moved from mostly-cash to almost exclusively WeChat pay/alipay is amazing, even for a totalitarian hellhole.
I think the centrist dads are going to be fine with “digital currency”, but it’s going to undermine the kind of “freedom” crypto bros are attracted to rather than enable it.
Why crypto? It has absolutely nothing behind it.
At least Fed Reserve notes have taxing authority behind it.
Why not gold? After all, it is “as good as gold”.
Bulk of bitcoin is owned by a few whales. Doesn’t seem ideal and the value easily manipulated.
Recession? Hard to say there will be a recession with this much deficit spending keeping the wheels turning. Funny how similar the chart for US debt looks like the US equity market. As if assets equaled liabilities or something lol.
Higher rates on the horizon…
“That’s the astounding thing, that the government has been racking up these huge debts despite the strongly growing economy.”
Could be that the economy is growing strongly because the Federal government is spending so much borrowed money. They stop, the party stops.
A big portion of what the government spends money on has no impact on GDP and doesn’t go into GDP, including all interest payments, all foreign spending, some military spending, etc. Other expenditures only go into GDP indirectly if and when the recipients spend it.
People tend to over-estimate the contribution of government spending to GDP.
In Q3, growth of federal government spending accounted for 60 basis points of the 2.8% GDP growth.
This means if there had been zero growth in federal government spending, GDP would have still grown by 2.2%, which is still above the 15 year average GDP growth of 2.0%.
GDP by major category in Q3, adjusted for inflation, in annual rates:
All data from the BEA’s GDP tables.
let’s leave gdp aside. isn’t the extra interest going to people who can then spend it?
You missed a fundamental principle here. I choose whether I put my $1,000 into a T-bill, a CD, a high-yield savings account, a money market fund that doesn’t invest in Treasuries, etc., and earn the SAME interest that I then can spend. My income and spending don’t change, whether I put my $1,000 into a CD or T-bills, and so there is zero effect on the economy from my choice between a T-bill or a CD.
But the Fed having raised short-term interest rates which raised yields across the board, including for CDs, money market funds, savings accounts, etc., those higher rates from the Fed did have an impact on income and spending by yield investors, such as retirees. There are $6 trillion in money market funds and something like $17 trillion in bank deposits, that all started yielding more. But it doesn’t make any difference on the economy if consumers earn their interest on a CD, money market fund, high yield savings account, or Treasuries.
right, but if the government is taking that $1,000 and spending it, or distributing it to other parties to spend, doesn’t that juice gdp whereas it wouldn’t if it was sitting on a bank’s balance sheet? the bank would presumably loan it back out, but it wouldn’t necessarily be spent, no?
if i’m misunderstanding something, then how does the keynes theory that government spending helps fight a recession?
Thank you for defanging the Keynesian Multiplier Effect regarding deficit spending and GDP.
Deficit spending in excess of economic growth causes the national debt to surge — and encourages debt assumption by banks, corporations and consumers — but it doesn’t lead to sustainable GDP growth.
Are we approaching a level of federal debt where the majority demands governmental de-leveraging, and where “over-indebtedness” regains an undesirable (even sinister) state for consumers and corporations alike? Won’t the rise in rates feed that transition?
I think the USA became the equivalent of a “special purpose vehicle” that took the sins off personal and corporate balance sheets. Which is always temporary. I can’t wait for the wail and cry and finger-pointing when it returns to our overt financials, or rather, becomes obvious, present-tense to us and for us, without eh buffer of government to pretend is not the public (us). It is ours, however we juggle the books, and whichever theorist we might blame.
It’s that 69% consumer spending contribution I have to question what part of that is government funded. Does that number include child related tax credits, earned income credits, welfare funds, section 8 vouchers, etc. or is it solely spending of income from a job, inheritance or investments?
David E,
All of the things you mention are small. The big kahuna of transfer payments, which you didn’t mention, is Social Security. But SS is self-funded by payroll taxes that go into the SS Trust Fund. So it’s just a transfer of money from contributions to benefits. Wage earners and employers have less money to spend, and if they spend less because of it, it slows GDP growth; while retirees get money and can spend more, which increases GDP growth. Over time, the net effect on spending and GDP is about zero. This works the same with other self-funded “transfer payments,” including most of Medicare, unemployment benefits, etc.
Some transfer payments, such as welfare (which is minuscule), are not self-funded. The portion of those transfer payments that is paid for via borrowing and not tax receipts (about 1/3 now) would convert debt growth to GDP when this money gets spent.
In terms of tax policies that you mentioned, such as tax rebates and tax credits of any kind, but also any tax deductions, including contributions to 401ks and charitable trusts, etc. even regular tax refunds, anything that lowers taxes paid, lowers tax RECEIPTS. So this lower income for the government leaves more money to spend with consumers, businesses, and billionaires, and if it gets spent on consumer items or fixed investments, then it adds to GDP, while the government would have less money to spend and spend less, which would subtract from GDP. So it’s a wash in terms of GDP. Except, if the money that stays in the private sector due to lower taxes gets invested in stocks, bonds, or cryptos or buying a resale house, it doesn’t even add into GDP.
The whole calculation gets incredibly complex as to what happens to GDP when you do x. Policy makers and private-sector think tanks with the best analytical tools and data at their fingertips constantly guess and estimate this stuff, and are usually proven wrong later by reality.
This chart shows inflation-adjusted income without transfer payments (red) and transfer payments, most of which are SS payments, see first paragraph (blue).
Doesn’t interest and foreign spending impact GDP indirectly/counterfactually? Paying our debts impacts the value of the dollar and thus imports/exports, and foreign spending impacts exports directly–part of giving Ukraine $ allows their regular economy to continue to function and pat for MS Office licenses and whatnot.
Don’t worry. Elon is going to cut $2T government expenses thus balance the budget.
Vaporware. Just like the autonomous cars, underground freeways, etc.
D
Just raise taxes by 2 trillion.
Problem solved.
Laffer’s Curve is laughing at that comment…
BG
You mean the theory from a quack economist ?
You just outed youself as a Reagan retread .
That hankerchief that it was written on, is still smiling somewhere in the trash of Economic theory.
Elon just needs to lay off like 70 % of government employees (NGOs, military complex …), just like he did at Twitter and the problem of debt is solved.
Easy peasy for Elon the Magnificent …
OOB – that there is a tax rate at which revenues have a maximum (the Laffer curve) is a trivial deduction from elementary calculus.
The next question you should be asking is why would the mainstream try to deride an obvious basic and fundamental economic result? … because it went against their interests at the time.
Now the question you should be asking is whether current tax structures are at, above or below the rate(s) which deliver maximum revenues?
And the answer is – unless carefully considered, simply raising rates will not raise revenues. Do more analysis, son.
It is funny how everyone wants to laugh at the Laffer Curve… despite tax receipts going up every year since it was implemented by Reagan in 1982. Tax receipts even barreled higher when he doubled down on tax cuts with the 1986 Tax Reform that cut the top rate to 28%.
SpencerG,
Tax receipts would have gone up A LOT MORE without those tax cuts. And the deficits would have been a lot smaller, or there wouldn’t have been any deficits in some years at least.
Tax receipts go up because of:
1. inflation
2. growth in employment
3. growth in capital gains (a biggie)
4. growth in profits. But profits matter less and less as most tax receipts are from individual income taxes.
You volunteering to pay more tax? I accept.
Yes, and most likely take unemployment to 15%, but “recessions” have been banished…
LOL.
Interesting times.
If Musk can lay off 50% of the 2.4 million federal civilian employees, and none of them get another job, it would increase unemployment by 1.2 million people, and bring it from the current (low) level of 6.98 million to 8.18 million. This would move the unemployment rate from 4.14% to 4.85%, not 15%.
You can calculate this yourself and play with what-ifs, such as:
“What if Musk laid off everyone, including the President: unemployment level 6.98 million plus 2.4 million = 9.38 million divided by the labor force of 168.48 million = unemployment rate of 5.56% LOL
People have crazy ideas about federal government employment. It’s just 1.4% of the labor force.
Sure but there is a multiplier–the consumer businesses in Foggy Bottom and Fayetteville aren’t going to be unaffected.
The Feds may not be responsible for much of the labor force, BUT there are numerous PRIVATE companies that are 100% reliant on government contracts.
Let’s see if Musk takes those away too.
Such as SpaceX?
Didn’t D. Cheney say years that ‘debts and deficits’ don’t matter?
He did. And they don’t. Until they do.
Do they now? Or will it take the US federal debt approaching $100 trillion at 10% interest? The debt is now increasing at around $2 trillion per year so it looks like hitting $100 trillion is a few decades out into the future!
They already matter. See the 10-year yield of 4.4% compared to Germany’s 2.25%.
‘Good point Wolf.’Debt and deficits Don’t matter until they Do”
Is the most realistic way to see it.
Which means our Government is playing with fire.
That guy’s name is Dick. And he shot somebody hunting. He’s hilarious.
The US was riding a gravy train before the pandemic hit. Near 0% payments on the debt and plenty of buyers. Of course, now, Buffet and the usual suspects are diving into 4%+ bonds.
The dollar is still the boss but physical gold is real safety.
There is no ‘safety’ at all in gold at any price above $20 per ounce.
Why $20/ounce? Please clarify.
Gold prices right now look like buy high sell low. Sorry I don’t want to be a bag holder.
Seems to be all assets ATM
True, and they say that inflation is falling in Canada and the States.
Here in Canada, the job market is becoming so depressed that whenever I see a job posting for an entry level job for C$18/hr, at least several thousand people applied.
During the recession (2008-2010) the mantra used to be that for every job vacancy at least 100 will apply.
But back then a one-bedroom apartment went for C$900 a month in Toronto. Today the same one-bedroom will go at least C$2,500 a month.
$900 these days can’t even get a shared mattress inside a rooming house.
Yes, greedy slumlords are charging rent on shared queen size beds. It’s appalling. They had a documentary where the “landlord” told the reporter that she will be sharing a bed with a “good [young man] for $700 a month I believe.
Not even Jack Tripper in Three’s Company had to live like that.
It’s like Canada will have a huge underclass living in cages while the politicians and business elite own mansions and square miles of rental properties to rent per cage to the serfs.
@Gen Z, you’re exaggerating. I know the housing situation is messed up, but get on Craigslist, choose rooms/shared, check private room, set price range from $500-$1000, set distance to 10km from a central postal code, and you’ll find a good amount of rooms available.
Sounds like your country sucks.
But at least you are raising awareness. I wonder what else you can do.
LOL…then again, we elected Trum-p.
1a2b3c
It’s not an exaggeration. It’s the consequences of increasing the population from 37 million in 2020 to 42 million in 2024 without providing the increase in jobs, housing or increased services. It’s by design to make the few politicians and their cronies who own real estate richer.
This is actually the reality:
Someone is renting out a shared bed in Toronto for $900
Real Estate
Kimia Afshar Mehrabi Posted on October 23, 2023
In today’s episode of sketchy listings in Toronto’s rental market, check out this lake-facing bedroom up for rent for $900. While it might seem like a sweet deal, the only caveat is that you’ll have to share the queen-size bed with another tenant. (BlogTo)
MussSkye
Ever since I saw that job posting for a data analyst being posted here recently, some Americans don’t know how good they have it in terms of jobs and salaries right now.
People are saying that Canada is good for those who were starving or facing death in their home countries with nothing to their name, which is true.
But for people who want to achieve, and have lived a middle class lifestyle in an emerging economy, America is the place to be. The wages are high there.
And for an average American with a good job to flee to Canada because of the elections is like going from the frying pan into a volcano. America rewards talent. The jobs are paying well as I can see.
The national debt is high, yet the private sector is paying well.
“America rewards talent”.
You bet it does, and we know how to SPOT REAL TALENT here, too!
If you aren’t a Trump, WWE, Duck Dynasty, Rev Osteen, Happy 1, etc, etc, caliber person, then you might as well stay where you are.
Less likely to end up in jail or homeless….for a bit longer, anyway.
LOL! Gold is going nowhere, an ounce is still an ounce and, more importantly, gold is still the preferred collateral of every central bank on the planet. Gold is your insurance policy in, regardless of the fiat system that comes out of all this.
A big war in the coming decade will take care of the national debt issue across the developed countries
Mr. Richter,
I believe the periodic debt ceiling games return in a few weeks? Will they just raise it or might Trump use the debt ceiling to cut federal employment?
Anyhow, let the games begin.
Cheers
Cut Federal employees? LOL
Most Federal employees are working from home. Firing them will be easy. Look for Musk to lead the effort. They will all be fired via e-mail. He did it at Twitter and will take his skills over to his new role as the Government efficiency CZAR.
If that happens, I hope you have a flight scheduled the day after.
There will be no debt ceiling charade with only one party in power after a clean sweep, a situation that Republicans now have. They have the House, they have the Senate, they have the White House. They can pass whatever budget they want if they stick together. And they will pass whatever budget they want. There won’t be a debt ceiling charade until Democrats control at least one of the three.
“There will be no debt ceiling charade with only one party in power after a clean sweep …”
You mean like in 2017 and 2018???
I agree. Not necessarily a given with the margins in the house and how divided the causcus is and that obviously this is Trump’s last term so allegiance might not be as strong. They likely won’t get a single democratic vote and Republicans in competitive districts or states have to think about their futures. Will be fin to watch it play out but taxes will be first item on agenda given the expiration of many of the TCJA provisions.
Filibuster is still a thing, fyi
Let hope they go after regulations, then the staff.
How is Big tech and AI going to get their nuclear plants ASAP?
They don’t need nuclear right away. Natural gas will be the intermediate fuel.
Imagine a data center with its own combined-cycle gas turbine. Gas goes in, data goes out. No grid interconnection needed.
With AI it’s generally gas in and garbage out.
Wait a minute! You mean the companies cheerleading solar & wind……are drill baby drill, then nuclear?
Makes sense.
Tom, someone told them the wind doesn’t blow at night and the sun doesn’t shine at night either.
AI doesn’t output data, it outputs predictions about data. Input data is always the critical limiter in terms of scope, depth, accuracy, etc.
The only way for AI to achieve it’s promise is to give it much less fettered to information about our personal lives and accept the implications of the predictions it makes–both of which humans, and particularly narcissistic, “freedom” obsessed Americans are going to push back against tremendously.
Just wait until AI starts limiting how many drinks YOU can be served based on your personal health data and how fast YOU can drive based on YOUR reaction times.
Two years ago we saw how willing people were to die so they didn’t have to wear a paper mask for ten minutes at 7-11.
the nuclear hype will die down again after those tech-companies realize that all those small modular NPPs are just vapor vare and have the same costs associated as big plants only they provide a lot less energy. I wonder how many are willing to comit to the most expensive electricity there is just because they got exited about a few power points.
Anthony,
You didn’t mention when and how you became aware of that.
Just curious.
> Today, the US national debt jumped by another $61 billion . . .
This number makes no sense.
Two trillion divided by 366 equals $5.4645 billion or a daily federal government debt increase of $15.84 per person.
You decide if that is a lot.
Yeah only $16 a day times compounding interest times an infinite number of days…no big deal lol
cnchal
It doesn’t work that way.
The debt rises on a particular day when the amount of new bonds issued the previous business day exceeds the amount of old bonds that matured the previous business day. Often enough, the debt actually falls on particular days because the amount of matured bonds exceeds the amount of newly issued bonds the previous business day. This happened on Thursday, when the total debt fell by $18 billion to $35.973 trillion. And then on Friday, it rose by $61 billion to $36.03 Trillion.
“The debt” is composed of all the Treasury securities outstanding, with new ones being issued all the time, and old ones maturing all the time, on a preset schedule. Lots of people here hold some of them. “The debt” is not some monolithic thing.
$15.84 times 366 equals a deficit of $5,797.44 per person in one year. That’s a Federal government deficit of almost $500 per person per month. At least to me, that is a lot.
would be nice if I could perpetually overdraft my checking account by $500 a month.
Looks like it is “ride or die on the back of the US currency”.
What is going to happen if the spending is successfully curtailed?
obviously, the government needs to do that. But it won’t make that much difference on GDP growth, that’s one of the sad parts of many years of this spending spree — because a lot of it does nothing for economic growth and doesn’t enter into GDP directly or indirectly. For example, interest payments and foreign spending don’t go into GDP, neither directly nor indirectly, see my comments above and below).
But if the spending that actually goes into GDP gets curtailed to where it is not growing at all, Q3 GDP would have been +2.2% growth instead of +2.8% growth, as I explained with the data from the BEA’s GDP table in my comment above and below.
The NIPA accounting identities make it pretty clear that a government deficit absolutely – arithmetically, no escape possible – does show up as a surplus elsewhere – e.g. public or private profits. This is covered occasionally by Pettit and also Hussman. The mechanism isn’t always obvious but it’s always there.
Reducing that deficit is important, but will have massive side effects that almost no one is thinking about.
See hussmanfunds dot com, Market Comment, May 2023:
“ A quick note on how government deficits are related to corporate profits (more dots connecting). Every deficit of government results in a mirror image surplus in other sectors – households, businesses, and foreign trading partners – where their income exceeds their consumption and net investment in U.S. goods and services. Moreover, those surpluses (“savings”) must, in equilibrium, be held in the form of whatever liabilities that the government issued in order to finance the deficit. This isn’t a theory – it’s an accounting identity. Saying that the government ran massive pandemic deficits is identical to saying that the private sector accumulated massive surpluses, and now holds those surpluses in the form of government liabilities: either new Treasury securities, or (if the Fed buys those Treasury securities) bank deposits backed by Fed-created reserves.”
Conclusion: If the FedGov reduces its deficit, someone else running the (required) balancing surplus is going to see a decrease in that surplus.
I believe a lot of that surplus is in record corporate profit margins. When the FedGov inevitable has to curtail its deficit, that is likely – just per the account ting identities – to drive down corporate profits. That bodes ill for stock prices which currently assume high earnings growth rates for a very long time.
Bagehot’s Ghost
Where does the deficit money comes from? borrowed from private-sector economic participants. They give their cash to the government, and the government does something with it. So if you cut the deficit, you cut borrowing, and thereby cut that transfer of private money to the government, and that private money will then go into the economy somewhere else. The government replaces private spending. Cut the deficit, and the private spending that would have gone into Treasuries now goes somewhere else into the economy. It’s just money the private sector has that’s flowing around. It can flow via the government, or it can flow via some other route.
There may be timing delays, and timing may be off if the government cuts abruptly, and the then still private money doesn’t instantly follow into the footsteps.
But this is really not the issue. The issue is the unsustainability of the trajectory of the debt.
BG
Definitely time to triple the corporate tax rate while killing the loopholes.
@Wolf:
“ Where does the deficit money comes from? borrowed from private-sector economic participants.”
No, that’s not the whole picture, needs more thought. If that were right then Keynesian stimulus wouldn’t work.
Looks to me like U.S. private banks, and foreign Central Banks, buy the majority of Treasuries and have no meaningful constraints on reserves currently. The only transaction is FedGov gets loaned cash, and bank gets a bond. The banks’ lending is not a constrained zero-sum decision resulting in cutbacks elsewhere. But the banks now earn interest on the loan, which is pure profit.
Furthermore, the FedGov, having borrowed and spent the money, absolutely is increasing demand.
One has to follow the money further to see how it lands in someone else’s profits, but it does.
This:
That’s the astounding thing, that the government has been racking up these huge debts despite the strongly growing economy.
–> it’s the other way around Wolf. Because of the huge debt the US is growing.
Germanys government broke because of a couple of billions missing. The amount is so small compared to US debt it’s not even possible to enter on an American calculator lol.
A big portion of what the government spends money on has no impact on GDP and doesn’t go into GDP, including all interest payments, all foreign spending, some military spending, etc. Other expenditures only go into GDP indirectly if and when the recipients spend it.
People tend to over-estimate the contribution of government spending to GDP.
In Q3, growth of federal government spending accounted for 60 basis points of the 2.8% GDP growth.
This means if there had been zero growth in federal government spending, GDP would have still grown by 2.2%, which is still above the 15 year average GDP growth of 2.0%.
GDP by major category in Q3, adjusted for inflation, in annual rates:
All data from the BEA’s GDP tables.
Doesnt all spending eventually becomes someones income. As individuals spend, save or invest income that gets reflected in GDP.
Higher interests rates have been good for me and perhaps for the markets. When I make my RMD this coming January, it will all be covered by interest income. Whatever interest is getting paid on federal debt directly impacts what I earn in interest weather from buying TBILLS or deposits with Banks.
In the 0 rate years, my RMD would come from liquidating stock. Now I don’t liquidate stock I just use the income from interest earned. In that sense, higher rates are stimulative. They reduce selling pressure on equities and put income in my pocket which I will spend during 2025.
As rates come down, maybe I will be forced to sell shares ito fund RMD in 2026 and I will have less income from interest and will spend less. Thus in an odd way, declining interest rates become a negative.
Of course for non-government debtors, declining rates are positive. All very curious.
One thing is certain. The debt can never be repaid and everyone knows it. The whole game is the rollover and liquidity is just the balance sheet capacity needed to manage the rollover.
Don’t forget the one Trillion dollars a year (plus) interest payments. That is always added to the debt, if the Govt does not have the ready cash to pay it……
It’s already part of the debt. Interest payments that were made are included in the debt and contribute to the growth of the debt.
Is there a limit to how much debt the US can carry? What are the consequences of going beyond that limit? Are there historical precedents of countries going beyond a safe (or manageable) amount of debt?
The consequences of too high debt for a government that controls its own currency is inflation. All sins lead to inflation.
Wolf, given the consequence is inflation, what type of investments will be best to make sure our hard earned money does not get inflated away?
Do you think he is going to provide you with financial advice?
You can’t shield your cash from inflation, just like I can’t shield my cash from inflation. What you can do is place your cash in investments that will produce a return higher than inflation. Some examples of what others are doing with their cash:
-Warren Buffet is using most of his cash to buy T-Bills.
-My neighbor, retired corporate executive, is using his cash to startup a visiting nurse/home health aid business
-A friend of mine is using his cash to buy sub-$5K cars that need work, fixing them in his shop and flipping them as starter cars for those who don’t want to spend $30K on something else. The old fashioned “beater” to get your kid to his fast food cashier job doesn’t exist anymore.
-Personally, I do a combination of CDs, value stocks, high quality dividend paying stocks, and play with options just to get the juices going.
There is no one size fits all and everyone has a different set of skills, knowledge, risk tolerance, patience, etc.
As long as people are willing to lend money to us govt it can borrow as much as it can
On top of it.. fed can always buy bonds and lend money to government
I can assure you one thing ..after few years this number would be at 100 trillion usd and we’d be still talking the same thing.
Per govt metrics inflation at this time is benign at a out or below 3 percent
There is absolutely no limit to this madness so hedge accordingly
Milton Friedman was lamenting about excess government debt since the 1970s, and it’s gotten very worse in the past few years, because the wages haven’t kept up in real terms. The word “unions” is considered obsolete these days compared to the 1970s too.
there surely is a limit where yields will blow out. we just don’t know what it is yet.
Yes, of course, there is. The problem is that nobody knows what that number is. I agree with Wolf. Deficits don’t matter until they do. Unfortunately, predicting the moment we have this epiphany will be challenging. We probably have one more moderate to severe recession to deal with before treasury auctions give rise auction tails that spell Armageddon are near.
One thing I keep thinking of is the impact of government-issued debt on the supply of money. Does US debt, in effect, increase the money supply temporarily until the debt is paid? My pea brain views it that way, and I would like my pea brain to have an accurate representation of reality. So is this the case?
If it is the case, then at $2,000,000,000,000 (2 trillion) per year, that wipes out any gains the FED has made with QT. But I have a feeling that’s not the whole case, because debt like US Treasuries sits in accounts like my retirement account, and I don’t spend that debt or spend the interest I earned on holding that debt to maturity. So the math wouldn’t be 1:1 for debt:added money into supply.
Wolf and others, any suggestions of resources that I can dig into that explains my confusion with the above? Many thanks.
No, it doesn’t work that way at all.
When the government sells you $1,000 in bonds, you take $1,000 out of your bank account or brokerage account and give it to the government, and the government puts it into its checking account (TGA). So the $1,000 just goes from your account into the government’s account, same money, different accounts. It’s just a transfer, not money creation.
Then when the government spends the $1,000, it goes from the TGA to the recipient’s account. Just another transfer, no money creation. The government cannot and does not create money.
WR explained it better but money supply increases when Fed does QE ie creating money out of absolutely thin air.
Let’s just say that somehow the new Trump administration and Rep Congress is able to balance the budget for FY 2026 starting on 10/1/2025.
I personally think that the moment the deficit goes to zero and the supply of “no risk” USTs starts to drop due to repayment – even $1M a day – rates on that now shrinking pool of safe assets will plummet. Thereby dropping the rates on new TBill insurance (back to 2% or less?), allowing the Treasury to aggressively retire 3%+ Bonds and Notes by buying them on the open market. It could turn into an accelerating virtuous cycle of debt reduction, pulling all US rates down.
They question is then whether the public is better served by a $2T structural deficit or broadly lower rates throughout the economy. Clearly for the last few years the politicians believed in the former.
If the deficit = $0 = balanced budget, the debt stays the same. The amount stays the same. Maturing Treasuries are replaced with new Treasuries. This was the case in 1999 and 2000, when there were sort of balanced budgets, and the debt didn’t grow (it edged up a little in some quarters and edged down a little in others).
It’s only when the government actually has a sustained and significant surplus that it might whittle down the debt.
With full respect to all here, and most of all to Wolf, the Republicans have shown a remarkable record of mismanagement when empowered. I’d be curious to know if anyone here believes that the new set up will be any different than the old set up, despite valiant efforts to return to some semblance of responsibility. I’m getting old and have seen this movie several times. It just seems that the monolith is like a giant pile of mud that has settled into an immovable blob that just absorbs all attacks without much damage. 3 years from now I bet Wolf will be writing about the new record debt, and his audience speculating on who is buying this debt. All this is in good fun of course. Best of luck to all!
Lol what Republicans exist? for that matter what Democrats exist?
All we have is fraudsters and leeches.
This will only matter when yields blow out and assets become strained… Then they’ll care about the debt…F it up worse trying to fix it… Causing more asset strain.
Maybe we get actual reform (completely new political parties and more then just two) and things bottom out, won’t happen though until we have massive pain.
We already have more than 100 political parties in the US representing every point of view but hardly anyone is interested in any of them and that will continue to be the case.
The one political party you have to worry about is the one that controls the military and the money. The others are make believe.
That is the only way out of this mess –> new parties. Many are lobbying the Bernie Organizations to right now (while the Democrats are down) start a new party to effectively neutralize the Democrats. Eventually the same would happen to the Republicans – doesn’t really matter which goes first just that it happens to one of them the sooner the better. Further, with the guaranteed demise of the baby-boomers, there is hope this may all play out – because it really does look like the baby-boomers vs. everyone else in allot of arenas.
Imposter: I’m way old myself. Totally agree on all counts. Wait til we see how the debts and deficits grow from here.
Haven’t we seen enough and far more than enough already?
“Meet the new boss
Same as the old boss”
The new attorney general pick is a lead Scientologist, so eat those words Pony!
The Treasury pick is an odd one too. You could probably find someone crazier but I’m scratching my head over some of the things he’s saying. Bloomberg has summed it up by saying he wants “tariffs, a shadow chair for the Federal Reserve and maybe a weaker dollar.” Apparently he wants to pick a new chair as soon as possible and set their policy in stone for May 2026 onward for the sake of “forward guidance”, so that everyone will ignore Powell. So much for being data-driven.
A lot of the stuff he’s been writing too is basically reading every indicator to be some kind of vote of confidence for the new president. Instead of fitting your ideology to the data you’re fitting the data to your ideology. Apparently that’s what it takes to get nominated now but that’s no way to run a country.
He said in a Bloomberg TV interview on the 5th, in response to a question on why he doesn’t think Trump’s policies would be inflationary and raise bond yields, that “if bond yields go up it’s going to be because the markets are pricing in higher growth, not higher inflation under Trump.”
The name that was given to this kind of thing after 2016 was “postmodern conservatism” and so far it seems we’re going right back into that.
the reason for this is very simple. to actually get america’s financial condition under control, it would require pain and sacrifice on behalf of the people.
the people are not collectively willing to do that. you can run on a platform of not spending more than you have, but there will always be someone willing to outbid you, buying votes in exchange for goodies paid for with borrowed money. so even people who start out wanting to do something helpful end up losing interest and doing something else when they realize this sad reality.
don’t blame the politicians. they’re just a reflection of the people. blame the american people.
We are a country of instant gratification. As you said, there is no stomach for austerity here. We poked fun at the Greeks 16 years ago, we are no better, we just have a better standing at the moment.
1) In Germany the long duration from 10Y and up are all above 2Y. The German yield curve have been normalized. The spread between US3M and DET3M is 2%. The spread between US10Y and DET 10Y is over 2%. Gravity with Germany will pull the US long duration down.
2) BYD conquered Europe. VW will close 3 out of 10 plants in Germany. VW Q3 net profit was down to 9 million Euros. The Unions demand a 7% hike, management and dividends cuts. Germany has to protect its 800K highly skilled auto workers from Chinese import. The EV subsidies were cut last year. Tariffs will be imposed on BYD, Geely and Neo. The pair EURUSD plunged to 1.04. Momentum might cut it down under parity until the German volatility resolved. The Dow and BTCUSD closed at a new all time high. DX is up.
3) If the Fed cont to cuts rate in a conservative way it will ease gov payments. Lower rates ==> lower spending by the rich. Lower spending ==> lower GDP.
4) If we will produce in the US more rare earth, pharma, airplanes, ships, missiles, Nike Air Jordan – just a few more scoops – it will cut our trade deficit. Lower trade deficit will lifts GDP. Demand for highly skilled workers is already high. Spending will shift to the private sectors. In a successful, dynamic economy, all wage brackets will shift to higher wage brackets. Gov income from taxes and tariffs will fill gov coffer. Within a few years the gov might cut the $36T debt by a 1/3. T-bills % share of treasuries will drop sharply. Demand for the dollar will rise within a few years the Dow will take off. Demand for DXY will be high. The world quench US treasuries, sending the long duration
under inflation.
China now has 700 million middle class….. almost twice as many as there are Americans. China controls 70% of rare earth mineral production, 80% of global battery production. China produces no less than 10 million EVs…..the US is far, far below that. The only chance for the US is a rapid shift to low cost robots and automation (Musk style)….of course, that won’t be good for middle class salaries.
If the debt burden becomes unsustainable, the government will try every expedient to avoid default – except to reduce spending and to raise taxes. Price controls, interest rate repression, trillion dollar coins, capital controls, debt moratoria, alternative currencies (such as crypto), devaluations – everything that failed in the past. If this occurs, expect mainstream economists to declare that inflation is a blessing, because it erases all debts.
“If the debt burden becomes unsustainable, the government will try every expedient to avoid default ”
Any govt who print its own currency can never default on its debt obligation in its own currency.
IN essence, US Govt would never ever ever default on its debt obligation.
The only game in the town is currency devaluation and increasing price/ not value of everything which we are already witnessing for last few decades also known as inflation.
Would be interesting to see how many and how much banks increased their interest paid on savings and checking accounts since the Fed increased interest rates. Savvy investors bought Tbills, CDS, money market, etc., but I see a lot of clients with bank money still at 0-1%.
Most deposits are said to be “sticky” to various degrees. But some deposits are “flighty.” And there are ratios for them. Banks that have a high rate of “sticky” deposits make more money. Generally, deposits in transaction accounts are sticky by the very nature of those accounts. They’re used to operate not to generate income. That’s many trillions of dollars because corporate transaction accounts have big balances because they have huge bills to pay, such as payroll. Other deposits are sticky because people are lazy, and the banking industry counts on it.
Deficit up by 14T since 2020. Did most of that come from pandemic stimulus combined with decreased tax revenues in 2020? Were there other big changes that caused the acceleration?
I think the “Inflation Reduction Act” was around 1T? Anything else that caused a big impact?
What a wonderful and educational article! It is refreshing to see this data presented clearly and explained clearly. Great job!
And yet, these same morons borrow tens of thousands of dollars to buy the latest piece of equipment to drive down the road. Somehow, my five cars navigate the same roads without robots, A I, and warning lights from the engineers.
We have become the world of George Orwell’s fears.
If you cannot drive, don’t drive.
Stop the train. What……. we’ll figure all this out and somehow get the debt in control and the government will somehow stop its constant spending? Surrrrrrre, Musk can maybe save us 2 trillion (snort) but the bozos in DC will spend 3 trillion in a couple of months. All this bru ha ha about deficits and taxes and blah blah blah. Sheesh. We got into this mess because everyone wants everything and at the same time and no one can say “no”. Check out the student debt scam, simply transfer the cost to the tax payers that DIDN’T borrow the money, and they’ve solved a problem? Right. Money like heroin is addictive, that holds true for flat screens and (apparently) tattoos as well as DC so called representatives that are charged with running the country. Think they’ll change their undies given the rich lifestyle they live which opens doors to the industries they regulated post congress, White House or Supreme Court. Then there are the libs, protect the Fed force, protect the contractors and sub contractors who make millions and of course protect the innocent and idiots who can’t keep up simply because. Screw the tax payer, screw the retired, screw the working people is their mantra.
The US vastly overspent during COVID, over $6 trillion.
The new policies coming of raising prices by tariffs and cutting taxes and spending and deporting and ending cheap labor should make for interesting times.
I soooooo agree!
With it just revealed that the Fed governors and staff gave 91% of their donations to big spending Keynsian Democrats including the Biden/Harris ticket and their minions, who were overwhelmingly thrown out of office by the American people, don’t expect this lame Congress who can’t even pass a budget to do anything meaningful to control the out of control Federal Spending. Don’t expect the Fed to do anything meaningful either especially with J Powell in charge. It will be more of the same. Get ready for some serious Inflation as the money printers go on another rampage to stave off a recession. Bitcoin, gold, and silver are telling you all you need to know. ENJOY.
I feel like Fed officials donating to a political party goes against the idea of Fed independence. It can be seen as a way of attempting to influence fiscal policy, which is traditionally taboo for the Fed.
Those were the employees mostly at the 12 regional Federal Reserve Banks, which are private institutions, and some employees at the Federal Reserve Board of Governors, which is a government agency. From what i saw, I don’t think any of the FOMC members that make the decisions were among the donors.
That is reassuring; thanks Wolf.
I can certainly see how low-level employees at the regional FRBs aren’t in any position to influence Fed policy, even if they’d like to.
Pretty sure I saw last article that Ireland, Luxembourg, and Belgium were in the Top 6 Financial centers. Been wondering ever since if they are also counted in the Euro area. Not sure that it matters, but still curious.
And what about Switzerland? They’re not Euro or Schengen, but they are in Europe.
I like Wolf’s comment about the size of the deficit doesn’t matter until it does.
I really think the best that could happen is you might be able to slow the growth at best and thar seems doubtful. My opinion is given the strength of the dollar relative to anything else this is a long long ways out, even perhaps irrelevant for my teenage son. Impossible to predict when the US won’t be the dominant reserve currency and have solid competition. That doesn’t mean all with be well and good for quality of life in the US, just that people will flock to the dollar and yields won’t likely go crazy high.
It’s called crowding out!
The US establishment is like a car full of teenagers drunk on liquor ignoring (or not caring about) consequences, barreling down the highway. Sadly, often the drunks survive and innocents perish. Do these maniacal fools not know the destruction and carnage they will eventually cause? A devastation WILL come, because it’s not one short trip…it’s the same drunk, irresponsible driving (spending like threre’s no tomorrow) day after day after day.
They are irresponsible donkeys! The result will be disastrous. They have to know it. They may end up perishing also. I wonder what life will be like at the other end of the tunnel?
Does the increasing debt basically increase interest rates and does it increase inflation?
JB,
Read more of Wolf’s articles, closely, and you will start to better understand the nuanced relationships.
“Net Private Assets Denominated in $USD Goes Over 36 Trillion, + 2 Trillion in 2024!”
Doesn’t have the same ring, I suppose, but then accounting identities are rarely exciting …
You’re one of our resident MMT trolls. So every now and then you spew MMT troll BS. Generally I delete your MMT troll comments, but your other comments are great and survive.
I’ll wear it — and when I can falsify its premises I’ll abandon it, as I do the rest of my necessarily contingent frameworks of understanding when presented with new evidence, thanks.
ZIRP was an insane/desperate policy that went on for far too long and in the absence of any law and order to actually prosecute the perps responsible for the great financial fraud of 2007/2008, ZIRP simply resulted in rewarding bad behavior, the greatest capital misallocation, and the greatest transfer of wealth to the top 1% that the world has ever seen.
Nothing new under the sun.
I take solace in the confidence that ZIRP will not return anytime in our lifetimes.
The “interest payments as % of tax revenue” chart is fascinating–thanks Wolf!
I would love to see some sort of decomposition of the underlying factors driving the numerator and denominator.
From the interest side, I’m guessing the weighted average rate of maturing instruments is the driver? So the 80s high figures were driven by the debt taken on during inflation 70s?
From the revenue side, I’m guessing the two main drivers are underlying economic activity and how much that activity is being taxed–low Reagan taxes also explain something about 80s peak?
“From the interest side, I’m guessing the weighted average rate of maturing instruments is the driver?”
The answer is the last chart in the article: average interest rate on this debt per month.
Mr Richter, what do you make of Jim Rickard’s comment that “the debt isn’t a big deal”…?
I am not an economist but all of this debt certainly cannot be a wonderful thing for this country.
I am an older woman but I don’t need a PhD to see that the debt we have isn’t a wonderful thing to leave for our grandkids.
It’s not a big deal until it is a big deal.
It was a very big deal in the late 1980s and early 1990s as long-term rates remained very high even as inflation came down. The White House cursed that debt at the time. The bond market is a scary thing when it acts up.
What were the Debt to GDP and Average interest rates during the during then record high net interest payment years of the 80s?
If these 2 factors were normalized today (but what is normal since 2008?) I can only imagine what the debt service ratio would be?🤑
In terms of the average interest rates on the debt, the data from the Treasury Dept that I have access to goes back only to 2001, and you see all of it in the chart.
Debt-to-GDP history:
Tks!
Wow, so during the really high debt service years of 82-92 the (debt service ~50%) GDP to debt was blended at 40% looks like.
We are 3x as indebted today at 120% and debt service around 40% (20% less in payments with 3x the debt).
Crazy, shows the power of several hundred bps and massive leverage on mind boggling sums.
Hmm, what else does remind me of too… the housing market.
Seems like short of income tax rates/receipts going way way up from say $2.5T to 3T (imagine the horror) and transfers somehow being whacked back the same from $2.5T to 2T (even more laughable) and crossing your fingers debt service doesn’t head from $1T to $2T next 5 years as projected… all seems to point to Fed (surprise) printing more money again soon and buying debt nobody wants even as rates climb and bad things for the dollar (?).
Not hoping for this, but haven’t seen an adult in the room in Washington in a long time at the Fed, White House, Congress.
How do you think it plays out Wolf?
Pretty ironic that Rickards, who predicted 10 of the last 2 recessions, would say something like that.
“Foreign investors backed up their trucks and loaded up.”
Not only are they buying US Treasuries, they are also buying US stocks and US corporate bonds.
US is the best place to invest in right now. Top technology companies, energy independent, abundant resources, etc.
Europe is struggling to keep up with US and the GDP gap will grow. China is a mess.
The USD is getting strong…which causes commodities prices to drop too.
I just read the dollar may go par with the Euro at $1.
the u.s. might be the best place to be invested, but not sure it’s the best place to invest today. valuations are beyond obscene. unless you subscribe to the modern theory that valuations don’t matter, you’re paying an amount that exceeds any bubble in the past.
Relevant quote from Russel Clark, capital flows & asset markets substack:
“US government borrowing has definitively moved to a private equity ethos. In true private equity fashion, a “greed is everything” government will only stop borrowing when the markets stop lending.”
That doesn’t account for the Federal Reserve Bank purchase of U.S. debt. There is no limit to the ability to buy U.S. debt.
Yes, there is a limit. The limit called INFLATION. And we already hit that limit.
MMTers keep forgetting that inconvenient issue of inflation.
Yes Wolf, inflation is a economic trend and has been before, the “limit” is in the beholder. Too much money buying more assets and necessities has caused limited supply, in economic parlance. People could save or invest more, but that doesn’t show on the yearly G.N.P. as you have courteously explained, thanks. It is the consumer at all levels who makes that decision. I’m not exactly a M.M.T.advocate, and understand from my knowledge and experience that the Federal National Debt is the sum of every $ the Federal Government has created for their “investment” in growth, for good or bad, without a “return”, other then putting a value on the dollar, we all pay taxes with it. That cumulative debt is since the early 1800’s if I’m not mistaken in my reading. To me it is sad to believe the “debt bomb” hanging over our heads as been proposed for those who can take advantage and gain. It’s salesmanship, another U.S. cultural stigma that has been noted for a long time.
Comparing the recent G.N.P #’s with the cumulative resources (money) the Federal Government has added to the economy, less tax revenue is pretty hard to explain. Sure taxes could be raised on those now benefiting the most from the money supply and tax laws currently but the outcry and politics involved are hard to fathom.
Stock by backs, were not legal or very limited not more than 50 years ago. The profit motive of private healthcare also had statute limitations back in the 60’s.
I think matters of those sorts are more relevant to the general welfare of the US.
“In October, the average interest rate that the Treasury Department paid on its total debt, dipped to 3.30%”
Wolf, what is the Google search term you use to find this data? I have been trying to follow this.
You go to the Treasury Department’s website and you download the data. I don’t use Google to get data. I get it from the source. How to do that is up to you to figure out.
I Google “Debt to the Penny” every morning and it brings me right to a .gov website. The US Treasury’s website probably has thousands of pages. If I were to go their home page and try to find debt to the Penny, I’d be looking for days. I’ll ask ChatGPT and see if that’s helps.
Not my job to teach you. FWIW, you really don’t know how to do anything on the internet and on your device, not even scrolling down on a webpage (such as the debt to the penny page). Do you always only look at the top of the webpage and think that’s all there is?
I, for one, am actually a bit disappointed!
How can the chart NOT be going exponential (yet)???
Everything else is!
It happens all the time!