DANGER AHEAD FOR U.S. GOVT: Unable To Service Debt As Interest Rates Surge

The U.S. Government is in serious trouble when interest rates rise.  As interest rates rise, so will the amount of money the U.S. Government will have to pay out to service its rapidly rising debt.  Unfortunately, interest rates don’t have to increase all that much for the government’s interest expense to double.

According to the TreasuryDirect.gov website, which came back online after being down for nearly a month, reported that the average interest rate paid on U.S. Treasury Securities increased from 2.2% in November 2016 to 2.3% in December 2017.  While this does not seem like a significant change, every increase of 0.1% in the average interest rate, the U.S. Government has to pay an additional $20.5 billion in interest expense (based on the $20.5 trillion in total U.S. debt).

Already, the U.S. Government is off to a BANG as it’s interest expense paid for the first three months of the year increased to $147 billion compared to $139 billion in the same period last year:

This chart was taken directly from the TreasuryDirect.gov site, with my added annotations.  As we can see, the U.S. Government paid $126.5 billion to service their debt Oct-Dec 2015.  We must remember, the U.S. Government Fiscal period starts in October.  So, in just two years, the interest expense the U.S. Government paid for Oct-Dec increased more than $20 billion.  Now, what is interesting is that the average interest rate in Dec 2015 was 2.33%, but in Dec 2017 it was only 2.31%.  Thus, it was actually lower, even though the interest expense increased by $20 billion.

The reason for the $20 billion increase in the interest expense during Oct-Dec 2017 versus Oct-Dec 2015 was due to a more than $2 trillion increase in U.S. debt over that two-year period.  So, the U.S. Government will have a serious problem as interest rates really start to rise… and that doesn’t even include the continued increase in total U.S. debt.

This next chart shows the increase in U.S. debt, while the average interest rate fell from an average 6.6% in 2000 to a low of 2.2% in 2016:

The falling average interest rates occurred due to the Federal Reserve policy to stimulate the economy as well as to keep the U.S. Government interest expense from skyrocketing.

Now, there is a difference between the U.S. Federal Government net interest expense of $266 billion on the $14.7 billion in public debt in 2017 versus the total $458 billion interest expense on total debt of $20.3 trillion, which includes “intragovernmental holdings.”  The Federal Government is only stating the interest it’s paying on the public debt in its budget.  However, Intragovernmental debt is debt that one part of the government owes to another part. In almost all cases, it is debt held in government trust funds, such as the Social Security trust funds.

So, if we want to know the total interest expense paid via total U.S. Treasury Securities, we have to also include the intragovernmental holdings, or that amount that the U.S. Government has borrowed from other governmental agencies.

For example, before the government raised the debt ceiling on Sept 7th, the public debt was $14,410 billion, and the intragovernmental holdings were $5,434 billion for a total of $19.844 billion:

However, the intragovernmental holdings increased the most in percentage terms by rising 4.7% ($256 billion) to $5,690 billion while total public debt only increased 3.2% ($649 billion) to $14,802 billion… for a grand total of $20,493 billion.  The U.S. government still has to pay interest on their intragovernmental holdings… and a lot of that interest is going to pay for Social Security.  According to Social Security Report July 2017, of the $836 billion in benefits paid in 2017, an additional $88 billion came from earned interest.  Thus, 10% of Social Security payouts last year came from a large percentage of interest earned on the Social Security portion of the intragovernmental holdings.

If we consider total U.S. Government interest expense, including intragovernmental holdings, it hit a record high of $458 billion in 2017:

Unfortunately, when interest rates move back toward a more normal rate of 5%, the U.S. Government will have to fork out $1 trillion-plus a year, just to service its total debt.  Even though the Federal Reserve might try to lower interest rates during the next market crash, the market will likely react in the opposite direction as real rates start to rise.

The Central Banks have purchased $15 trillion in assets since the 2008 market meltdown.  Furthermore, their zero-interest rate policy has driven speculative growth with the addition of $70 trillion in debt in the same time period.  While the Central Bank insane easy monetary policy may continue for a few more years, the tremendous amount of LEVERAGE in the system is getting out out hand.

I will be providing an update on the madness taking place in our economy and financial system in my newest YouTube video Stock Market Leverage & Insanity Reaching Nose-Bleed Levels, which will be out tomorrow.


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46 Comments on "DANGER AHEAD FOR U.S. GOVT: Unable To Service Debt As Interest Rates Surge"

  1. Unfortunately, when interest rates move back toward a more normal rate of 5%, the U.S. Government will have to fork out $1 trillion-plus a year, just to service its total debt.

    That’s as much as ReplubiCon tax cut for billionaires every single year!

  2. Both parties are to blame for this mess. While I don’t like the fact that the Trumper’s tax cuts and infrastructure spending will increase the deficit/debt, if we are on a trajectory for financial destruction and/or a financial adjustment (aka reset), then I want a president who will give me something now so that I can spend it (or save it) as I see fit rather than someone who just taxes me more. Having lived in Illinois many years, I can tell you fiat in my pocket is better than my fiat in theirs any day of the week.

  3. If interest rates rise to 5 percent, the government will be broke. As rates rise debt increases exponentially. Eventually everything fails. It will be inflation or default.

    Instead the Fed will lower rates to zero or even negative. Uncle Sam’s creditors will pay him! They will monetize all the debt. What’s to stop them? Only the Chinese. The games end when the USA loses reserve currency privilege.

  4. Michael Kohlhaas | February 1, 2018 at 4:21 pm |

    The US are screwed! Bend over and drop your pants!!!

  5. Steve, Nothing against you on this but why is it always 3 years out!? By all indications back in 2012 after the rat bast%$ds wrestled the silver control back, it’s been continuous, it’s a coming, it’s a coming!

    • Silvrwllwn

      It is real easy to see things in hindsight, foresight? Well that’s not so easy. I am clueless when it comes to fundamentals; it is one of the reasons I read Steve’s site.

      I do my own charts because that is where the money is. I work on the basis the smart money will move before I know anything BUT when it does start moving, I will see that move in the charts, however small, before it gathers pace.

      TPTB who are printing the money know all the technical hot spots and have written algorithms to compensate. There is one problem with that IMO, their algorithms are biased to the upside; they have to be if this lie is to continue.

      Have a look at the DOW Jones, in Q1 2017 this index crossed the exponential number of 20,480, 51,100% from its low in 1932. It took 85 years to get there. We are now in Q1 2018 (less than 12mths) and this index has already moved up another 25%+ from 20,480 to 25600+ or 64,000%. At this pace this index will reach 40,960 (20,480 x 2 = 40960) before 2022.

      Think about that for a moment! It took 85 years reach 20,480 and now has the potential to double that growth in 5 years to 40,960 or 102, 300%; unbelievable.

      My reasoning said to me, these markets had to fall over some years ago; why? Because they were already in a bubble then; people around me and even my own family have lost some faith in my abilities. It makes you have a good look at yourself and question how one could have been so wrong.

      I don’t think Steve or anyone who comes into this room are wrong BUT our patience is certainly being tested by the lunatics in charge. I have been treading water a bit of late and have decided to find new projects to amuse my time.

      I have put the money I have in what I consider items of value and will just continue to wait this out; 2018 could be more than an interesting year.

      🙂 :)

      • Good luck GB. Remember, if you swim downstream for too long, it’ll be dark when you come home.

  6. Steve,

    In reality it is not the us govt who is in deep trouble by increasing intrest payments
    but the debth tax/slaves/workers who will have to pay for the lavish spending and debth of previous and present govt.

  7. “Both parties are to blame for this mess. ”

    i really don’t think the “limits to growth” (the fundamental issue under all these symptoms) is political. of course when going off the cliff, having our government put pillows at the bottom rather then spikes would be preferable.

  8. Any debt held by the Fed, the interest is paid back to the treasury. So, the more debt the Fed buys the less interest the government has to pay. In the end I guess they’ll suck it all up like Japan is doing. But eventually the dollar will crash, I guess. When?

  9. angus mckracken | February 1, 2018 at 6:33 pm |

    When things looking like they are turning sour look at the glass being half full. Make money on falling bond price, falling dollar, rising debit, and rising gold and silver.

  10. Actually, the US gov is unable to service the debt NOW without borrowing more!! Don’t send this report to the Pres, FED or Congress cause they don’t give a hoot, don’t care about budget, don’t have to. The lifers keep getting voted back in.

    Social Security IS the main cog that keeps the economy going. MOST of the southern US would fall into depression without it along with rural USA. Social Security up to now has been funded by the working class and employers. It SHOULD be drawing clean interest on it’s own. Now law makers act as if Social Security is a sin after they borrowed and blew off the fund on war and tax cuts.

  11. Rising rates and a declining dollar tell you all you need to know about dollar strength. It’s clearly in the early stages of terminal decline which could gather pace very quickly or continue slowly for a while longer; 3% in the 10 year is probably sustainable and Bill Gross thinks we stay below that level in 2018. Whether the CB’s move to a multi-polar reserve currency (SDR’s) before the crisis hits or after the event remains to be seen. Fiscal stimulus combined with tax cuts and increased military spending is like throwing fuel on the fire, Trump probably know exactly what he’s doing, with the tacit approval of CB’s. My guess is a purposeful decline in the dollar to the brink of collapse then a low entry point into the revised SDR with a gold revaluation, probably 2019/20.

  12. It is not the taxpayers fault for mismanagement of adequate tax revenue imo.So why blame tax cuts for overspending ? The fact is that there are too many govt. workers and welfare/other govt. programs for the private sector to support.

  13. So… inflate America into oblivion it is. The Yin of that Yin/Yang is that .gov will get a much needed haircut. .gov was supposed to be FOUR branches; not 60.

  14. Dick Carmack | February 1, 2018 at 8:46 pm |

    The only solution is to abolish the Fed and go back to Constitutional money.

  15. Nice figures Steve. Clearly one big fat mess. But we see so much dissonance it’s sadly amusing. No it’s not political failure anymore then personal failure. It’s been a choice. People wanted to be told they could live off other people’s productivity and politicians told them what they wanted to hear. So people voted themselves into office and have the nerve to blame the crooked politicians who are made in their image.

    The problem has always been and still remains that for the system to work it requires perpetual growth. So whether you like it or not corruption it useful in maintaining monetary expansion. More debt more money which the US has been the primary beneficiary. US dollars have been the primary export for years and goods and services have flooded the country with real booty. The average American thinks it has been the result of the political system creating a free economic base that lead to prosperity. Never has it ever crossed their mind that the prosperity was simply a product of unusually accessible resources.

    Since prosperity never was a product of the political system why expect a solution from it?

    The only way to fix the problem would be to restore the original conditions that created it. Meaning all the resources that we’ve consumed being back where they were. That would make America Great Again. Of course we would be where we are now and the country would be inhabited by Indians. Then again in a few years time we would be right back at this point.

    Some have concluded that the real prosperity from Capitalism is to not deal with the waste products of consumption, or in other words the consequences. Simply put the luxury is created from ignoring one side of the ledger. Like living off debt by increasing your debt by servicing debt with debt.

    Since no one did the math and believed the hype it’s hard accept that the consequences have arrived.

    I find it quite impressive how far the system has been pushed beyond its limits. So give the politicians credit if it wasn’t for there manipulation this illusion would have ended years ago. Instead the public got what it wanted years of unbridled consumption with the promise of more. Now it’s time to pay the bill I hope the ride was worth it.

    • Well said JT Roberts…. Maybe the paradigm shift that is coming will be the issue or distribution of resources for necessity rather than money or for those that can afford them.

    • great comment

    • DisappearingCulture | February 2, 2018 at 12:52 pm |

      “The problem has always been and still remains that for the system to work it requires perpetual growth…..Never has it ever crossed their mind that the prosperity was simply a product of unusually accessible resources.”

      Powering it all was energy from coal then oil, then oil from other countries. Not the least of which has been the population explosion.

  16. Maybe Steve can forecast what year the interest on the publically-traded debt will equal or exceed 3% of GDP.


    In a 2% inflation world, an investor is not going to receive a 5% nominal return holding average-weighted US Treasury securities.

  17. The US is doing what Robert Mugabe did in Zimbabwe….printing worthless currency and hoping people will still accept it. Zimbabweans rebelled against this but the people of the world are still accepting the exact same thing from the US. It has been going on since the sixties. The US doesn’t care how big their debt climbs to or how much so called interest they pay on this debt because they can simply print more. Until the rest of the world sees what suckers they are for trusting in US$s, this farce will continue. The US will use their massive bully military that is funded with these same worthless dollars to prolong their money printing as long as they can.

  18. It would not have mattered who was President. The debt accumulated over the last 30 years by Bush/Clinton/Bush/Obomber is the issue and the fact NOBODY on Crapitol Hill actually wants to cut spending on anything. The Donald bought into Keynesian Bull-shi’ite, like everybody else so yeah, he’ll have to accept some of the blame when this barn burns down, but clearly the debt accumulated, especially under Bush/Obomber, has sunk this country. The satanic goal all along.

    • DisappearingCulture | February 2, 2018 at 11:30 am |

      “….and the fact NOBODY on Crapitol Hill actually wants to cut spending on anything.”
      The fact is this economy crashes without creating ever-more debt. It took me some study to understand that, but it is a fact.

  19. On another matter, the MSM and Fox news keep talking about how the US is pumping out 10.5 million barrels of oil a day and has surpassed Saudis as leading oil exporter. They make no mention of the cost of fracking, or the fact that you bring up about the US miners losing mega millions on these oil exports. Are they totally ignorant of the economics, or have you miscalculated?

  20. Anyone able to cogently explain why bonds/stocks major crash today and this week yet silver huge down also? And please, a short throw off of saying it’s all manipulated won’t deal with how silver will protect you.

    Yeh, i thought so

    • Hi Frank,

      I think no matter what the stock or bond market did today, gold and silver were in the mist of their monthly decline. In general the markets move the opposite of precious metals but not always in lock step. Please keep that in mind. So with that said, today was a good day to buy precious metals. I do believe we will see a pronounce rebound next week.

      James R

  21. Greetings James,

    Have not bought any pm yet but been watching it awhile so am curious what you mean by your reference to this “monthly decline”

    Is this some cycle or pattern i am unaware of? After all for last couple months has been climbing.

    One basic idea behind this site is that investors will flee into pm when markets crash. Now maybe I’m being hasty here but even if the effect on pm is delayed you’d still think silver price would stay steady, not drop almost a dollar/oz as it did when stocks dropped 670 points.

    Yes, good time to buy, unless this silver drop means pm prices will not protect from a crash, as it seems to indicate.

    Do you think silver price will rebound next week because it just will, i.e, because of this pattern you speak of? Or because you think equities will continue to fall and this fleeing investor effect will belatedly kick in?

    Common sense in one hand, reality in the other.

    • Northwest Resident | February 2, 2018 at 8:10 pm |

      Frank, I would also like to toss out a wild guess. That being, that ZERO percent of physical gold/silver holders rushed to the local coin stores today to cash out their gold and silver. The prospect of that happening is laughable, since the whole psychology and indeed reason for holding physical gold/silver is to protect wealth against market crashes. It’s the paper silver and gold owners (owners of paper, not gold and silver) that flipped into a rising dollar today. It really is just that simple.

    • Hi Frank,

      I will try to answer your questions:

      1) Regarding monthly decline. If you look at the history of the gold chart (2000- present) you will notice gold has peaks and valleys. The valleys come in at approx. 60 days. The cause of such valleys is determined by sentiment in the market.

      2) As for the price of silver being steady. No one can be 100% confident. In my opinion the final bottom of silver is in and at the moment the price of silver is experiencing weakness (with extreme bearishness). I do expect to see a rebound either Monday or Tuesday.

      3) The reason why silver will rebound is because of extreme bearishness in silver.

      As for my personal choice, I prefer physical silver over paper. Because in the end paper silver will not hold any value.

      James R

  22. Northwest Resident | February 2, 2018 at 7:47 pm |

    Frank, the gold and silver price tends to move in the opposite direction of the U.S. Dollar. People dumping (most likely paper…) silver and gold during this mini-market-crash were most likely moving their unsecure “paper” silver and gold investments into the “safe haven” of the dollar, which explains why the Dollar Index had its biggest daily gain today since Jan 2017. When the dollar starts sinking again, which will be any day now, you’ll most likely see silver and gold go back up. When the dollar eventually becomes worthless TP, then you’ll most likely see silver and gold as the ONLY solid form of real money, again, like it was throughout most of human history.

  23. In my opinion this coming doom was all planned back in 1913 when the fed was formed.
    When I was young in the early 50s I bought a loaf of bread for 15cents and I have bought gas for as low as 15.9/10 gal. and get a cup or plate with the purchase. But way back before the Fed things were even cheaper. But when you tack on 2% inflation ( which is designed in the mix ) then we see why the dollar is worth 0.04. U see that 2% does not always stay at 2%. People like Woodrow Wilson, Jimmie Carter Nixon and a whole bunch of other idiots come along and POOF. Stay with silver and gold and no inflation and all is well. That does not mean we won’t have problems because what the hell! Were Humans and we invented problems. That’s my take. Keep Stacking.

  24. Northwest Resident: Hey! the dollar is worthless today, yesterday and is a has been for a long time.

    • Northwest Resident | February 2, 2018 at 10:49 pm |

      Ray, then how is it possible that I can still exchange my dollars for things of value — food, building materials, gold, silver… NOT worthless, yet.

  25. Northwest Resident: Your right it is worth 4 cents compared to what it used to be worth.
    A $20.00 bill looks the same but if you think it is worth the same then the govt. did it’s job on you ( on all of us ) Can you still buy a loaf of bread for 15 cents? I have, back in the day as they say. Designed inflation and no longer backed by GOLD.

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