Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Cost of Servicing US Debt Hits Decade High

  by    0   0

After Pres Trump signed a bill raising the debt ceiling last fall, we warned that rising interest rates could crush the US federal budget under interest payments. Well, interest rates are going up and so is the cost of servicing the US government’s $21-plus trillion debt.

The yield on the 10-year US Treasury crept closer to 3% Monday, rising 8 basis points to 2.965% after reports that other central banks could be set to join the Federal Reserve in pulling back from easy-money policies. Yields in the UK, Germany and Japan also climbed as bond prices dropped. A report that the Bank of Japan might be set to raise interest rate targets was the primary catalyst.

Bond yields – the interest rate paid to bondholders – move inversely to bond prices. As demand for bonds falls, prices drop in response and yields rise. Practically speaking, this means bond issuers such as the US government have to pay higher interest rates to entice investors to buy bonds. That’s not good news when you’re trying to finance a $21 trillion debt.

Analysts say Pres. Trump’s criticism of the Federal Reserve’s interest rate policies was also likely a factor in driving Treasury yields higher. The president took aim at the Fed during an interview on CNBC late last week, saying he’s “not thrilled” with the central bank’s push to raise rates. As CNBC put it, “traders said the Federal Reserve would now be sure to stay on its rate hiking path to prove its independence.”

Meanwhile, the US Treasury Department auction off $35 billion of 2-year government notes at the highest yield since 2008. According to data released by the Treasury Department, the yield on the newly minted 2-year bonds came in at 2.657%.

According to a Reuters report, the Treasury plans to auction $36 billion of five-year notes today and $30 billion of seven-year notes on Thursday. It will also auction $18 billion in two-year floating-rates on Wednesday – all in this higher interest rate environment.

This means the government will have to pay more in interest payments just to service this new debt.

And consider this: while they are creeping up, bond yields aren’t particularly high historically speaking. If the interest rate on Treasury debt stood at 6.2% – as it did in 2000 – the annual interest payment on the current debt would nearly triple to $1.3 trillion.

No wonder Pres. Trump doesn’t like the Fed’s interest rate hiking trajectory. The US government simply can’t afford anything approaching a “normal” interest rate environment.

The US government is already laboring under crushing interest payments. As we reported last month, at the current trajectory, the cost of paying the annual interest on the US debt will equal the annual cost of Social Security within 30 years.

Growing debt coupled with soaring interest payments creates a vicious upwardly spiraling cycle. As debt grows, it costs more money to service. That requires more borrowing, adding to the pile of debt.

This is bad news if you’re counting on a growing economy. Debt stifles economic growth. Multiple studies have shown GDP growth decreases by an average of about 30% when government debt exceeds 90% of an economy.

Peter Schiff has said the massive debt could eventually spur on the dollar collapse. How it will all play out remains to be seen, but it’s pretty clear the US has taken an unsustainable path.

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

The Outlook for Gold in 2020 Remains Bullish

Gold had a strong year in 2019 and a World Gold Council report says the outlook for 2020 remains bullish. We expect that many of the global dynamics seeded over the past few years will remain generally supportive for gold in 2020.” Gold charted its best year since 2010 last year. The price increased by […]

READ MORE →

Spending Us Into Oblivion: Federal Budget Deficit Tops $1 Trillion in 2019 Calendar Year

The US federal government ran a budget deficit of over $1 trillion in the 2019 calendar year. It was the first budget deficit over $1 trillion in any calendar year since 2012 — in the midst of the Great Recession. The budget shortfall from January through December totaled $1.02 trillion, according to the latest report issued […]

READ MORE →

Holdings in Gold-Backed ETFs Grew 14% in 2019, Hit All-Time Highs

Net inflows of gold into gold-backed ETFs came in at 400.3 tons in 2019, according to data released by the World Gold Council. ETF gold holdings grew by 14% last year and finished at 2881.2 tons. Overall, global gold-backed assets under management grew by 37% in US dollars due to positive demand and an 18% […]

READ MORE →

Central Banks Continue “Remarkable” Gold-Buying Spree

Central banks continued their remarkable gold-buying spree in November and remain on pace to eclipse 2018’s near-record purchases. According to the latest numbers from the World Gold Council, central banks added 27.9 tons on a net-basis to official gold reserves in November. That brings the yearly total for 2018 with one month left to calculate […]

READ MORE →

A Shocking Numbers of Americans Live Paycheck to Paycheck

We’re told that this is the greatest economy in history. Stock markets are surging. Unemployment is low. And yet despite the good times, a shocking number of Americans live paycheck to paycheck. Several surveys cited by MarketWatch reveal the precarious financial situation many Americans find themselves in. This is less than ideal in an economy […]

READ MORE →

Comments are closed.

Call Now