USA decides on quarterly interest of $1 trillion on national debt

There is lots of talk in regards to the US’s $34 trillion national debt. This isn’t the deficit – the quantity of red money that flows into the federal government’s coffers annually – however the cumulative national debt. However, a second number has not received as much attention, even though it should. That is debt service, the quantity spent each quarter to make interest payments on the debt.

In the last quarter of 2023, the quantity exceeded the monumental threshold of $1 trillion every three months. And it continues to rise.

The national debt is essential and an unlimited amount, which, because the Notes from the Peter G. Peterson Foundationisn’t only high – the country already had relatively high levels of debt – but is stratospheric to an unprecedented extent.

In the past, they argue, debt was primarily the results of national emergencies, be they wars, economic disasters or other limited isolated events. That is not any longer the case. The foundation points to “our aging baby boomer generation, rising health care costs and a tax system that does not generate enough money to pay for what the government has promised its citizens,” they write.

Some triggers, reminiscent of the Tax Cuts and Jobs Act of 2017, which increased the national debt by trillions and thereby effectively enabled wealth transfers to moneyed interests, may appear separate but may be traced back to certainly one of the predominant aspects, reminiscent of not enough tax revenue. Or George W.
Wormhole
. Bush’s plans to expand drug coverage for Medicare. One could argue that this is essential and essential because too many individuals cannot afford the drugs they need. But it fails, broken down by a few of these key aspects.

There are economists and their supporters who argue that a rustic just like the US, which may raise taxes, borrow and spend in its own currency, can mainly do whatever it wants economically. That debt isn’t an issue so long as printing money doesn’t result in inflation. And that the country could even reduce the danger of inflation through fiscal policy slightly than monetary policy.

This is a dangerous assumption, because theories may be right or improper, and when used to make decisive policy changes they could or may not work. But let’s put all that aside for a moment, because what economists don’t fully understand – but traders and others within the financial business often do – is the psychological nature of cash.

This is where interest payments come into play. Below is a graph from the Federal Reserve Bank of St. Louis’ FRED site. It shows quarterly interest payments over time.

There has been a major acceleration for the reason that third quarter of 2020, when the federal government began pumping stimulus and rescue money into the economy. Whether unorthodox economic theories like Modern Monetary Theory are correct or not is irrelevant. There is a long-established approach that can not be easily overturned because U.S. practices are intertwined with the remaining of the world.

Currently, when the country must finance its spending, it borrows money, normally by selling Treasury debt. Payments have exceeded the $1 trillion mark per quarter.

Perhaps a rustic that has its own currency cannot spend every last cent. A rustic that has spent most of its existence issuing debt, paying off that debt, and otherwise usually interacting with its own people and the world by borrowing its own funds and paying interest on them.

Maybe it may very well be done in another way, but that’s irrelevant since it isn’t so. Reuters reports“Investors are bracing for a flood of U.S. Treasuries that could over time dwarf the expected rally in bonds as they see no end to large budget deficits in sight ahead of this year’s presidential election.”

If traders are getting scared, it’s because they’re aware of the potential psychological consequences. Potential buyers of U.S. debt see no end in sight, starting to see the country as an even bigger risk than previously thought. Congress cannot bring itself to do anything to slow the rise. The required yield payments on bonds – the Treasury rate of interest – proceed to rise, as do the prices of servicing the debt, which is often met by more debt.

The fear is that the day of reckoning will come in some unspecified time in the future. Science fiction author Harlan Ellison once wrote a story: Rain rain go awaywherein someone uses the nursery rhyme to maintain the rain away when it is not convenient. One day, the person realizes that the “come back another day” has come and the floods are finally coming. After all, lenders want actual payments, no more debt.