Broker Check


March 06, 2023

As a brief follow-up to my recent blog post entitled “The National Debt…How Did We Get Here??”  I wanted to bring up an additional issue that is not being talked about much but will likely be a major point of discussion as we head toward the 2024 Presidential and Congressional elections. Unfortunately, they will be here before we know it

Our national debt has risen by more than 50% since September 2017, when it first crossed $20 trillion. As anyone who has ever borrowed money to buy a car or home certainly knows, when you borrow money, you have to pay interest on the debt you owe.

The same holds true for the federal government. One of the side effects of the Federal Reserve Bank raising interest rates eight times, so far, in the last 11 months is that the interest the federal government is paying on their (our?) debt will start to move significantly higher as low-interest rate Treasury bonds come due, and are replaced with ones paying a much higher interest rate.

Just to remind you, less than a year ago, the Treasury Department was paying less than 1/2% interest on six-month Treasury bills. Recently, that interest rate has exceeded 5%. Furthermore, the Fed has told us that they are not done raising rates, and they could raise two or three more times, depending on the future trajectory of inflation pressures. This could raise rates by an additional 1/2% or more.

All of this means that the government is now paying significantly more interest than we were just a few years ago. As a matter of fact, as you can see from the chart below, which comes from the Federal Reserve Bank of St. Louis (FRED) website, the amount of interest on the federal debt has risen by more than 50% just since the onset of the COVID-19 pandemic. Remember, this is before much of this debt starts rolling over at higher interest rates. 

When the government spends money on things like education, defense, infrastructure, and social safety net programs, such as Social Security, and Medicare, we receive something of value in return for taxes we pay. As you can see from the chart below from the Committee for a Responsible Federal Budget for the government’s most recent fiscal year, which ended September 30, 2022, the interest expense the government is incurring is dwarfing the amount of money available for other important programs and initiatives.

However, unless you are the owner of the Treasury bills, notes, and bonds the government is paying interest on, you are receiving nothing for the much higher interest costs the government is now incurring on its ever-growing level of debt. This is something that needs to be addressed on a national level by our leaders. We certainly all must do this individually and corporately at our homes and businesses. 

Let’s encourage a spirit of cooperation across the aisle and a willingness to talk about difficult issues as we move toward the next set of elections. This is something we can all hope for as we continue “Moving Life Forward”. 

© 2023 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.