The U.S. Government Massive ONE-DAY Debt Increase Impact On Interest Expense & Silver ETF

The U.S. Government’s massive one-day debt increase had a profound impact on the amount of money it will have to fork over just to service its interest payment.  On Friday, Sept 9th, the U.S. Treasury increased the total debt by a stunning $318 billion.  Thus, the total U.S. Government debt increased from $19.84 trillion on Thursday to $20.16 trillion on Friday.

We must remember when the U.S Treasury adds more debt to its balance sheet; the government is now obligated to pay additional funds to service the interest on that debt.  So, for each increase in U.S. Government debt, comes with it, an increase in its debt service payment.

However, the U.S. Government has been able to control the rise in its annual interest payments by pushing the interest rate lower.  For example, the average interest rate on U.S. Treasury debt in 2000 was 6.4% versus 2.2% currently.  If we look at the chart below, we can see how the interest rate has declined as U.S. Government debt increased:

The RED DOLLAR bars represent total U.S. Government debt in billions of Dollars, while the WHITE LINE shows the annual average debt service interest rate.   We can plainly see that total U.S. debt has nearly quadrupled from $5.6 trillion in 2000 to $20.1 trillion in 2017.

NOTE:  I arrived at the average interest rate percentage figures by dividing the annual interest payments by the total outstanding debt.

This next chart from the Treasurydirect.gov website lists the annual U.S. debt service interest payments:

(interest expense on debt outstanding, Treasurydirect.gov)

By taking the interest payment of $362 billion in 2000 and dividing it by the total U.S. Government debt of $5,674 billion ($5.67 trillion), it equaled 6.4%.  So, the U.S. Treasury paid an average 6.4% interest payment on its outstanding debt that year.

What is interesting about the figures in the table above is that the U.S. Treasury paid out a larger interest payment in 2008 of $451 billion versus $432 billion in 2016, even though the debt was much higher in 2016.  The reason the interest payment was higher in 2008 than in 2016 had to do with a 4.5% interest rate on $10 trillion of debt compared to a 2.2% interest rate on $19.6 trillion in debt.  By cutting the interest rate in half (4.5% down to 2.2%), the U.S. Treasury’s interest expense remained flat or slightly declined as the debt nearly doubled.

Skyrocketing Central Bank debt is the rationale behind the super-low or zero interest rate policy.  If interest rates were normalized to either a 5-6% rate, the interest payments Central Banks would have to pay would bankrupt them.  Unfortunately, this game of suppressing rates to hold down ballooning interest payments will not last forever.  Even with a 2.2% average interest rate, the U.S. Treasury will likely reach a new record interest expense in 2017 at an estimated $460 billion:

(monthly interest payments, Treasrydirect.gov)

According to the Treasurydirect.gov website, the U.S. Government has paid $434.6 billion in interest payments in 2017, with September remaining.  If the September interest payment is $26 billion, the total will reach a record high of $460 billion in Fiscal 2017.  So, the notion that the Fed is going to raise rates is pure folly when we realize it will severely push up the U.S interest payment on its debt.

What would happen to the annual U.S. interest payment if the average rate was the same as in 2000 at 6.4%?  Good question.  The following chart provides the answer:

If the average interest rate increased to 6.4%, the U.S. Treasury annual service on its $20.1 trillion in debt would surge to $1.3 trillion, nearly three times larger than the $460 billion it will pay this year.  That is a BIG NUMBER.

There is no way the U.S. Government will allow the interest rates to rise as it is already dealing with a $566 billion budget deficit for the first ten months of 2017 (source).  If interest rates raised just to a typical 5%, that would push the U.S. interest payment up above $1 trillion.  This would more than double the budget deficit to over $1.1 trillion a year.

The Fed and Central Banks only have one way to go, and that is increasing debt levels and lower interest rates.  If they do not continue with that policy, then the entire financial system comes crashing down… and DOWN IT WILL.

To give you an idea just how insane the ONE-DAY $318 billion increase in U.S. debt is on its annual interest payment, take a look at the chart below:

The U.S. Treasury will have to pay out an additional $7 billion interest payment for the extra $318 billion in debt it increased in just one day.  Again, that $7 billion interest payment is based on an average 2.2% rate multiplied by the $318 billion in debt.  Now, if we compare the additional $7 billion of U.S. interest expense to the total value of the silver SLV ETF of $5.8 billion, we can plainly see that printing money, and increasing debt becomes a valuable tool for Central Banks to cap the silver price.

By the U.S. Treasury issuing another $318 billion in debt and another $7 billion on top of that in interest payments, this should have some impact on the precious metals prices, but it doesn’t.  How can the U.S. Government increase its debt in one day by an amount that would purchase all above ground silver investment inventories six times over, and not even impact its price???

That’s correct.  The total 2.6 billion oz of physical silver investment in the world is currently valued at $52 billion (2.6 billion oz X $20).  Thus, the ONE-DAY $318 billion U.S. debt increase would consume over 15 billion oz of silver at $20 an ounce.

So, why does the U.S. Treasury continue to increase its overall debt and interest payments?  Because it’s in the best interest of the U.S. Treasury to prop up the 99% of Americans who are invested in the markets.  Also, the U.S. local, state and federal governments receive taxes on salaries, real estate, businesses, investments, etc.  If the markets crashed, so would U.S. government tax revenues.  Thus, the U.S. Government would collapse along with the markets as asset prices imploded.

Lastly, the precious metals are one of the best safe havens to be in when the Fed and Central Banks lose control of propping up the markets.  Unfortunately, 99% of Americans will find about gold and silver a day late and a dollar short.

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33 Comments on "The U.S. Government Massive ONE-DAY Debt Increase Impact On Interest Expense & Silver ETF"

  1. Chaplain Dave Sparks | September 12, 2017 at 6:11 pm | Reply

    “Because it’s in the best interest of the U.S. Treasury to prop up the 99% of Americans who are invested in the markets.”

    I’m NOT invested in the stock market! Wow! Whoever thought I’d become one of the “One Percenters”?

    • DisappearingCulture | September 14, 2017 at 8:12 am | Reply

      “Because it’s in the best interest of the U.S. Treasury to prop up the 99% of Americans who are invested in the markets.”

      More accurate to substitute INVESTORS for AMERICANS in this sentence. Many Americans are not invested in anything…other than emotionalism, righteous indignation, or superficiality.

  2. 77% of all stocks are owned by the one percent. They know everything is going to collapse when the permanent oil shortages hit the world economy in a few years.

  3. 19.84 + .318 =~ 20.16, not 21.16 trillion. Unfortunately the work carries forward this error throughout. It’s still directionally correct, just off in the detail.

    • Yep..Need to correct those math numbers. Otherwise..an article that makes you think…What the hell is going on and more importantly how long can it go on before returning too a sensible equilibrium where things make logical sense and aren’t so distorted by government interference? Hopefully, things can stay distorted for a while. Revision to equilibrium would be unimaginable by 99% of the population.

  4. Thanks Steve, regards

  5. I just wish the markets would hurry up and correct!!! How much higher can the debt go??? 80 Quadrillion???

    Thanks Steve for all your hard work!!!!

  6. “Thus, the total U.S. Government debt increased from $19.84 trillion on Thursday to $21.16 trillion on Friday”
    – I think it’s only 20.16. No?

  7. Quick question. Can anybody tell me if there are any taxes to be payed on your interest earnings in the US?

    • Diogenes Shrugged | September 13, 2017 at 12:21 pm | Reply

      The federal government and most states tax interest income. That’s common knowledge, so I’m wondering if you misstated your question?

      • Thank you DS. And no, I did not. I’m not from the US and thus do not know all your laws. The point of the question is that in that case, the interest rates are even lower than the “official rates” as some of the interest flows back to the states and/or the federal government through income taxes on interest earnings.

  8. Yet another good reason to get out of paper and into PMs, but should the move be made now?
    For yrs a lot of folks have made good money playing the game along with the govt, it will take a major event for them to change and jump ship.
    I’m afraid when they do, there will be no life boats left.

  9. Great article.

    Could you add to the chart the absolute interest payments and the inflation adjusted interest payments too?

    Best regards,
    Jean

  10. This srsroccoreport may well turn out to have merit. But folks, source other info and weigh up the evidence then act. You have been given one scenario. Yes gold and silver may well benefit but to write off the US$ in the manner suggested is not guaranteed. According to other schools of thought, the price of gold versus the decline of the dollar, predicates on the unmentioned fact that gold will move in line with the Japanese Yen strengthening also.

  11. Can I donate by check?

  12. Is there possibility of using fiat crypto currency by central banks to keep control with themselves?

    • Anything is possible. Nixon just appear on TV one day and said that the dollar will no longer be convertible into gold. Trump could appear on TV tomorrow and say we’re not going to pay anything having to do with the national debt to any foreign countries or any other entities, Social Security and Medicaid will be redenominated into our new currency the New Dollar, all paper currency will be done away with, whatever you have in the bank accounts will be converted into New Dollars. All real estate, securities, loans, financial instruments, will be redenominated in the new dollar.

      • Matt – This is The Best Comment i have heard Anyone Make on Anything in the Last 6 Months! Thanks! Invisible Thumb Up! When will your Book – 2025 by Matt be out? lol – seriously – …….

  13. please explain

  14. Where can a person learn about just how is it that the government borrows from other countries? Also about the destination of interest payments?

  15. “There is no way the U.S. Government will allow the interest rates to rise as it is already dealing with a $566 billion budget deficit for the first ten months of 2017” Well, they have been raising interest rates and they may continue. The existing monetary policy is rigging the markets and if we had common sense we would demand that Yellen continue to raise rates at a faster rate and end QE forever because it’s the only way to stop the rigging and cleanse all the fake evaluations and appreciation in asset prices. To say they can’t would be selfish when we know that Americans can petition their representatives and the Federal Reserve and hold demonstrations to hold their feet to the fire. When will you start a petition to raise interest rates higher, faster and end all QE?

    • Despite the Fed, the rate on a 10 year Treasury is actually lower YTD. Fed is working (unintentionally?) to invert the yield curve.

  16. Steve, you forgot to mention the govt lent almost $6T to itself. Its like lending yourself $100K of a $300K loan to buy a house.

    So true Fed debt level is about $14T

    • Stuart,

      That’s incorrect. The Federal Reserve is not really apart of the U.S. Treasury debt. You should know better. The Federal Reserve is also not part of the U.S. Government… it’s a private corporation.

      steve

      • DisappearingCulture | September 14, 2017 at 8:26 am | Reply

        The Fed is a financial cartel. Big money controls government, not the other way around. That said, it’s a sick symbiosis.

      • Responsible financial commentators talk about publicly owned debt whne refrerring to the US debt.
        Only those trying to exaggerate the US debt or Gold bugs talk about total debt without deducting debt owned/controlled by govt.

        • Stuart,

          Exaggerating U.S Debt? You got to be kidding, right? I am sorry, that has to be one of the silliest things I have ever heard.

          steve

  17. Total US Govt revenue is $3trillion. If interest rates normalised to their historical average one third of revenue would disappear in interest payments…another third to the military…..this doesn’t leave much for running the nation.

    • I largely agree, but what is “historical average” worth in a world where the situation changes by the day (like e.g. an ever-increasing mountan of debt). If we went to say 5 or 10% we’re looking at $1 or 2 Trillion interest payments on the US debt (excluding the +107T in unfunded liabilities…). BUT – this $1 or 2 T is not payed by the US government right away, they would only pay the 5 or 10% interest on the newly issued debt – ALL current holders of debt papers would actually pay this 1T$ in losses on the value of their paper “assets”. Think bail-in Cyprus-style. Something to ponder. The end of over-indebtedness is never good, so I see TPTB to at least double down with more of the same (that didn’t work and will only further enrich the 1%) before the system will be caving in completely. Didn’t Bernanke say something like “We will never see interest rates normalize in my life-time?” I guess we’ll all find out soon enough.

  18. is US government paying back its debt on Time?

    • Yes…they are repaying debt….with worthless printed dollars…..Robert Mugabe of Zimbabwe was ridiculed for doing this and it led to hyperinflation but the USA gets away with it.

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