Since the end of the fake debt ceiling fight on June 2, the Treasury has borrowed an additional $700 billion pushing the national debt over $32 trillion. Looking at the interest rates on this new debt, it becomes clear that the US government has a big problem.
We tend to focus a lot on the Federal Reserve’s interest rate policy, while the central bank’s balance sheet stays in the background. But the balance sheet arguably has more impact on the economy over the long run.
Since the Fed began hiking interest rates in March 2022, it has also shrunk the balance sheet. But balance sheet reduction hasn’t been aggressive. In fact, the decline in the balance sheet since the pandemic is like a drop of water in the ocean compared to the massive expansion we’ve seen since 2008.
Federal Reserve Chairman Jerome Powell testified before the House Financial Services Committee on Wednesday (June 21). The Fed chief engaged in some more open-mouth operations, trying to guide monetary policy with words instead of actions.
To understand a few things he said, you have to read between the lines.
Oh, and he also got at least a couple of things wrong along the way.
The great anti-federalist Brutus wrote, “I can scarcely contemplate a greater calamity that could befall this country, than to be loaded with a debt exceeding their ability ever to discharge.”
And here we are.
With little fanfare, the national debt blew past $32 trillion last week.
As was widely expected, the Federal Reserve Open Market Committee (FOMC) put rate hikes on pause at the June meeting, although it indicated we should expect additional hikes before the end of the year.
The question is how long will the pause last and will the next Fed move actually be a rate cut?
The Consumer Price Index (CPI) increased by the smallest annual amount in more than two years in May.
This means the inflation fight is over and inflation lost, right?
Not so fast.
I warned you.
I said when the fake debt ceiling fight ended, the real problems would begin.
Well, the debt ceiling fight is over, and here we are.
On the first working day after the so-called Fiscal Responsibility Act went into effect, the national debt surged by $359 billion.
We have a debt ceiling deal.
And the deal is there is functionally no debt ceiling until January 2025.