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For a Few Dollars More...Spaghetti Westerns and the Federal Debt

For a Few Dollars More...Spaghetti Westerns and the Federal Debt

January 08, 2024

Sergio Leone was an Italian film director, producer, and screenwriter. He was credited as the pioneer of the Spaghetti Western genre. He is widely regarded as one of the most influential directors in the history of cinema. Sergio also introduced us to Clint Eastwood as the Man With No Name in the trilogy of films, Fistful of Dollars, For a Few Dollars More, and The Good, The Bad and The Ugly.

Source: Rotten Tomatoes

What may surprise many of you is that Mr. Rosche, my high school geometry teacher, thought that the ending scene of For a Few Dollars More included one of the best math lessons he had ever seen in a movie. The scene involves Clint Eastwood and Lee Van Cleef, who formed an unlikely partnership as bounty hunters. As Mr. Rosche and all of my teachers were fond of saying, “Math is a REAL thing!!”

 In the movie's final scene, Clint Eastwood is trying to add up the bounties for all the bad guys they have killed. However, he can’t seem to get the numbers to add up correctly. This is because one of the bad guys has escaped and was not on the cart with the others. Luckily, Clint Eastwood hears him trying to sneak up and resolves the issue in a very Western movie-like way. This leads to the following famous exchange between the partners. 

Col. Douglas Mortimer (Van Cleef): Any trouble, boy?

Monco (Eastwood): No, old man. Thought I was having trouble with my adding. It's all right now.

 For those of you who would like a reminder, a YouTube clip of this famous Western scene is included below. Please remember that this is a Western and includes shootouts typical of the genre. 

For a Few Dollars More (10/10) Movie CLIP - Corpse Math 1965

Unfortunately, the United States government also has a problem with its adding. This is because the government keeps adding to its federal debt at a rate that does not appear to be sustainable.

In early December, a check of the US debt clock shows that we are now rapidly approaching $34 trillion of debt. You may remember that when President Biden and then House Speaker McCarthy agreed on June 2nd, the current debt ceiling at that time was $31.4 trillion. This means that in just six months, we have added $2.5 trillion to the government’s credit card balance. Our federal debt has grown by more than 7% during 2023.

Many people are surprised to find that the biggest holder of the bonds issued by the US treasury is the federal government itself. The government currently holds approximately 40% of its own outstanding debt, as you can see in the chart below.

Another 35% is held by entities such as mutual funds, banks, state and local governments, pension, funds, and insurance companies. Finally, approximately 24% of the federal debt is held by foreign entities and governments.

There has been considerable concern about the amount of federal debt that is held by Japan and China. The total amount of US debt that is held by foreign entities is now $7.7 trillion, near a record high. However, over the last 10 years, both countries have decreased their direct holdings of US government bonds, as you can see in our second chart below.

I will be addressing other issues related to our federal debt and what the implications of this may be for our children and our economy soon. It is important to remember our federal debt grew dramatically after the government bailouts related to the 2007-2008 Great Financial Crisis. At that time, it did not become as big of an issue as we would have anticipated because the Federal Reserve Bank was holding interest rates at artificially low levels.

We first crossed $20 trillion of federal debt in September 2017. If the average government bond interest rate at that time was 2%, it meant the government was paying $400 billion in interest costs. As Mr. Rosche would remind us, simple math tells us that $34 trillion of debt at a time when government bonds are renewing for 4%-5% interest rates creates more than $1 trillion a year of additional interest expense. This is money the government is going to have to pay from the taxes they collect from all of us, and we get no additional benefits or services for this expense.

All of this should leave politicians, Treasury, and Federal Reserve Bank leaders feeling like they are having problems with their adding. They certainly have a math problem. However, the math problem is on both sides of the ledger. They can only raise taxes or cut spending so much. They do not have a quick way to close the gap like Clint Eastwood did in the movie above.

We know that the government needs A Few Dollars More. We will continue to watch government fiscal and monetary policy to help determine how it may impact you, our trusted friends, and clients. We will continue to communicate with you about these issues. We feel it is important for you to be informed and understand what is going on as we continue “Moving Life Forward”.

© 2024 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.

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