Say what you want about America’s finances under President Donald Trump, but he never promised to be a fiscal conservative. He vowed to not touch entitlements, he pledged to spend trillions more, and he proposed to slash taxes. You never really expected the nation to return to fiscal sanity.
That said, a fiscal bomb is about to explode in Washington. It might happen under Trump’s watch or his successor’s.
A new Deutsche Bank report finds that the U.S. government is spending $1.5 billion every day just to service the debt. But the financial institution warns that this figure will spike to $2 billion in the next few years.
Here is a number for your dinner conversation tonight: Did you know that the US government last year on average paid $1.5bn each day in interest payments, and this is rising toward $2bn per day over the coming years, see chart below. And this number could rise further as interest rates go up because of an overheating economy, more Treasury supply, and lack of demand for US fixed income from abroad because of higher hedging costs. These forces pushing US rates higher did not disappear yesterday.
Before you know it, interest payments will top $1 trillion a year, or about a quarter of the overall budget.
Zero Hedge proposes an interesting question: “How long before this becomes the most politically sensitive economic topic, and how long before the president threatens to fire Powell unless he, too, starts monetizing the debt?”
With interest rates only going up, it’s going to be impossible for Washington to keep up.
And that’s when panic ensues.
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