US Debt-Servicing Costs Skyrocket: $1.4 Trillion In Interest Payments On Deck

US Debt-Servicing Costs Skyrocket: $1.4 Trillion In Interest Payments On Deck

US Debt-Servicing Costs Skyrocket: $1.4 Trillion In Interest Payments On Deck

Summary : US Debt-Servicing Costs Skyrocket: $1.4 Trillion In Interest Payments On Deck.

US debt servicing costs skyrocketed in Q3 as the rate shock propagated to the $31 trillion worth of federal debt, a number that continues to grow at a $1.5 trillion per year clip.

This number will only worsen as we continue to retire cheaper old debt and replace it with costlier new debt.

If the current ~4.5% average yield curve rate propagates to all $31 trillion worth of debt, we are looking at $1.4 trillion per year just in interest payments.

US Debt-Servicing Costs Skyrocket: $1.4 Trillion In Interest Payments On Deck

By Howard Wang of Convoy Investments

Jerome Powell has been talking tough on inflation and clearly wants to leave a Volcker-like legacy. But the US is far different today than it was in the 80s. The recent Q3 US government borrowing report may throw a wrench in his plans. US debt servicing costs skyrocketed in Q3 as the rate shock propagated to the $31 trillion worth of federal debt , a number that continues to grow at a $1.5 trillion per year clip. Because of the high debt base, any small changes in average financing rate has a huge impact on ultimate debt costs to the government.

This number will only worsen as we continue to retire cheaper old debt and replace it with costlier new debt .

If the current ~4.5% average yield curve rate propagates to all $31 trillion worth of debt , we are looking at $1.4 trillion per year just in interest payments . This would be 29% of the 2022 FY total Federal tax receipt.

The US government may become the most leveraged and vulnerable player to rate shocks . When you rack up the kinds of debt that our government has, you can lose the luxury of rapidly clamping down on inflation like Volcker did in the 80s. I wouldn’t be surprised if Yellen is, along with the rest of the market, privately begging Powell to slow down.

Tyler Durden
Fri, 11/04/2022 – 15:20