The U.S. Government To Fork Out A Half Trillion To Service Its Debt In 2018

The U.S. Government is going to surpass another significant milestone this year.  According to the recently released data from the TreasuryDirect.gov, the government will fork out a stunning half trillion dollars just to service its debt in 2018.  Unfortunately, as U.S. interest rates rise, along with ever-expanding public debt, the cost to service the debt will continue to increase.

In just the first nine months of the year, the U.S. interest expense has increased by an additional $40 billion.  Last year, the U.S. Government paid only $375 billion to service its debt from October to June, but this year it has jumped to $415 billion:

Now, if we consider that the U.S. Treasury paid $83 billion in interest expense for the three remaining months last year, and add it to the current total, it would equal $498 billion.  However, the U.S. interest expense is up over 10% already.  So, if we assume that the interest expense for July-Sept will also be up 10%, then the estimated total debt service for fiscal 2018 will reach $506-$510 billion.

A half a trillion dollars to service one’s public debt is truly a staggering figure.  Since 2012, the U.S. interest expense has increased from $360 billion to an estimated $500+ billion this year:

Interestingly, the U.S. debt service in 2000 of $361 billion was higher than the $360 billion in 2012.  The U.S. government paid more interest payments in 2000 because of a much higher interest rate of 6.6%, even though the public debt was only $5.6 trillion.  In the chart below, we can see how the falling interest rate and higher debt kept the U.S. debt service from exploding:

If the United States had to pay a 6.6% interest rate on its $21.2 trillion in debt, it would amount to a mind-blowing $1.4 trillion a year.  This is precisely why Central banks will not allow their interest rates to rise unless the market forces rates higher.  If that happens, well then, the U.S.A. Titanic sinks to the bottom.

As I mentioned above, a half trillion dollars worth of interest expense is a tremendous amount of money.  By comparing what the United States pays a year to service its debt versus the annual GDP of various countries, we have the following chart below:

According to the data from Statistictimes.com, U.S. interest expense this year of $500 billion falls right behind Belgium and Sweden’s projected GDP of $562 billion and $600 billion respectively.  Furthermore, U.S. debt service will surpass the annual GDP of Thailand, Austria, Norway, Iran, Iceland, South Africa, and Denmark.

Moreover, the U.S. interest expense is higher than the GDP of 167 countries shown in the list at the website linked above.  There are only 25 countries whose GDP is higher than the annual U.S. debt service.

Whenever I discuss the rapidly increasing U.S. interest expense with individuals in public, their usual reply is, “Are we really paying that amount?”  I gather they don’t realize that those who hold the $21.2 trillion in U.S. debt are being paid that interest expense every month.  Whether it is a foreign government who owns U.S. Treasuries or a domestic Pension fund, everyone wants their interest payment… and they COUNT on it dearly.

For example, I estimate that China is receiving around $27 billion a year in interest expense from the U.S. government while Japan gets $24 billion for holding over $1 trillion each in U.S. debt.  I base that on an average 2.3% interest rate.

So, the BIG PROBLEM for the U.S. Government is what happens when the markets crack?  When U.S. stock and real estate values crash, so will the government’s tax receipts.  The only way to keep the U.S. government from going bankrupt during this time is to print money and lower interest rates.

Unfortunately, this time around, the country will not have the domestic energy supply to pull itself out of the next recession-depression as it did from 2008 to 2018.  U.S. shale oil production will likely peak within the next 1-3 years.  However, if the oil price drops like a rock along with the stock market, then the collapse of U.S. shale oil production could be even much bigger and sooner than the market anticipates.

All I can say is that the next few years are going to be one heck of a surprise for most Americans.

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35 Comments on "The U.S. Government To Fork Out A Half Trillion To Service Its Debt In 2018"

  1. Michael Kohlhaas | August 3, 2018 at 3:04 pm |

    The while crap will break – one day. I hope soon!!!

  2. Government Intervention is triggered by a Keynesian belief that aggregate demand can be increased by lower interest rates and by increasing government deficits thereby somehow spurring economic growth. Debt grows faster than income growth and eventually has to be restructured, i.e., everyone loses in the end. Since 2007, global debt has grown by US$57 trillion and it’s had disastrous results. Greece, Detroit, Puerto Richo, Venezuela are just the beginning of this trend. Soon, it will be followed by larger countries like China and United States.

    https://imgur.com/a/pYxKa

  3. As a contrarian argument to cover all the bases, even though interest rates rise and therefore increase the cost of servicing the debt, will these same increased interest rates draw in more offsetting foreign investment in search of higher yield, especially if the dollar, even though fiat, is still the world’s reserve currency, the most widely used, the most liquid, and finally, the cleanest dirty shirt?

  4. Shouldn’t the price of oil skyrocket if the dollar is crashing?? I don’t understated how oil will crash with the stock market.

  5. silverfreaky | August 4, 2018 at 2:55 am |

    The American stock markets are held up only by the technology giants Amazon, Google, Microsoft.There is no middle class like in germany.Trumps trading war leads to inflation.Prices should go up.

    We in Germany have the problem with the single currency and the entire liability risks and target balances of the southern EU countries.

    The Chinese will win the race, they have the know-how, the market and the man-power, but they didn’t pull up the new Silk Road project as much as I thought, they got it wrong, I hope our foolish government is involved.

    Generally applies:
    If you have a cake that doesn’t grow anymore, what can you do?you have to redistribute the pieces.Today’s policy that is increasingly strengthening the supply side is wrong.It has nothing to do with communism.
    In Germany, productivity has risen sharply compared to wages in the southern European countries.
    There are 2 elementary rains.

    1)Productivity must be in line with wage developments when looking at an economic area with one currency.
    2)If this cannot be achieved in the southern countries, these countries must be rebuilt in such a way that they reduce consumption but move towards self-sufficiency.
    For the above-mentioned reasons I therefore succinctly claim that US citizens consume far too much.A reduction is appropriate.For reasons of obesity alone.

  6. a crashed economic system would suit the don and his jesusfreak cronies very well

    and it is certain to crash, because a system based on infinite debt mortgaged against finite resources makes it a certainty. Herr Trump has been bankrupt 4 times already, why not make the next one really big?

    The scenario of the next few years is easy to anticipate:
    (the odd detail might be wrong–but not much)

    Keep in mind that all employment and food is oil dependent

    Oil becomes too scarce and expensive to use in the sense that we currently do
    Employment crashes, way into double figures
    food runs short
    civil unrest turns into violent disorder as lights begin to go out
    POTUS has no choice but to call in the military
    Violence spreads nationwide
    POTUS is ‘forced’ to declare a state of emergency
    assumes personal control
    overrides (frightened ) congress
    military falls in behind POTUS (he pays their wages)
    congress dismissed (or worse)
    POTUS takes powers of dictator
    jesusfreaks cheer him on, not realising it’s an energy problem, not a god problem
    Theocracy takes over to cheer everybody up (jesus saves etc)
    military begins to run out of energy
    fighting becomes civil war as states begin to secede
    POTUS retreats to his bunker, issuing nonsensical orders.
    USA collapses

    Just like his predecessor.

    https://medium.com/@End_of_More/the-oilparty-is-over-c06d3c723655

  7. forse pensano di morire prima secondo la teoria di Keynes?

    • Keynes era un estatista, su teoría sólo sirve para enriquecer a los poderosos miembros o conectados al Estado. El costo de este sistema de usura y fraude es la deuda que progresivamente se va traspasando a la clase media hasta destruirla. Después viene el reseteo. Cuándo? En los próximos meses o años.

  8. silverfreaky | August 5, 2018 at 1:42 am |

    That’s what I’m saying to Norman.the energy wasted just on the car registrations is huge.old cars are much more reliable.i drive an old Volvo.it’s 20 years old.the old Volvo 850, often called an armoured car in german, runs 660 000 km with appropriate maintenance.
    The fact is, however, that buying a new car will never pay off energetically.

  9. For the readers of this site, I offer the following facts:
    -the United States government cannot run out of dollars; it can print however many are needed to cover any amount of debt
    -the amount of currency debt in either the United States or the world is not directly correlated to the price of gold or silver, as evidenced since 2011
    -the system does not collapse immediately, it is too big and productive; rather, it gradually reverts back to feudalism

    For disclosure: I’m a physician located in the United States. Since 2010 I’ve been in gold, but have largely given up and recently diversified into bonds, stocks, and real estate. I don’t want to play this game, but have no choice as the system is suppressing gold and elevating all other assets to the benefit of the players. I’m also in semi retirement from medicine and may very well look for other work.

    • dolph,

      You are free to continue posting your opinion in here. However, opinions are based on the quality of information we acquire. Unfortunately, you have neglected to incorporate the ENERGY DYNAMIC in your opinion.

      So, when U.S. Shale Oil Production declines precipitously by 2025, the United States will look like a much different place.

      The only reason the Fed Policy of Zero Interest Rates and Massive Monetary Stimulation worked from 2008-2018, was due to the addition of 5+ million barrels per day of U.S. Shale oil production. If the Fed Policy changes were not met with increased energy production, we would not be witnessing the biggest Asset Bubbles in history.

      So, Americans who are completely diversified in just STOCKS, BONDS, & REAL ESTATE will likely receive the worst FINANCIAL ENEMA in history by 2025.

      Let’s compare OPINIONS in 2025.

      steve

      • Michael Kohlhaas | August 5, 2018 at 10:25 am |

        Steve, there should be a graph showing the time of collapse depending on the interest rate. Your turn! 😉

    • DisappearingCulture | August 6, 2018 at 11:36 am |

      “Since 2010 I’ve been in gold, but have largely given up and recently diversified into bonds, stocks, and real estate…”
      No Bitcoin or other cryptos?

  10. To the clown named Dolph who trolls these sites:
    Please give it up. Are you a troll working for .GOV or the Banks?
    Buddy if you gave up your gold and moved back into bonds, stocks, and real estate you are one dumbm*****. What do you think is about to happen? The players are moving out of bonds, stocks, and real estate. If they own any real estate they own it outright and it is much better than your real estate.

    The system is about to deleverage and the ponzi is coming to an end, especially here in the US. Have you not seen all of the countries recalling their gold, especially recently?
    Germany
    Hungary
    Netherlands
    Austria
    Belgium
    Russia
    China
    Azerbaijan
    Venezuela

    Why would they do that if everything is hunky dorey? Do you see Russia selling almost all of their treasuries and getting out of SWIFT? You see all the Gold they have acquired? You see all the Gold China has acquired? You see them setting up all the infrastructure outside of the dollar? Did you not see Saudi Arabia go and bow down to Putin earlier this year?

    Do you see the FED setting the stage for what is coming with their QT and raising interest rates? If you cannot see what is coming then go line up to the edge of the cliff and get ready to fall off like the rest of the lemmings.

  11. silverfreaky | August 5, 2018 at 8:49 am |

    To Zman:

    Nevertheless, you have to ask yourself why the Chinese or whoever is not cornerning the silver market.
    27,000 tons per year is nothing. In monetary terms that would be in the 2-digit billion range. The Chinese could easily buy it off.

    This means that there is already something like a tacit agreement between banks and governments not to do this.

    • silverfreaky,

      I would advise that you pay LESS ATTENTION to what Central Banks are doing and what is taking place in the ENERGY MARKET. Central Banks will continue to print money, but they cannot print BARRELS OF OIL.

      The collapse occurs because Central Banks can’t find more BARRELS OF OIL.

      steve

    • SF, China could pull the plug any second they wanted. But they don’t. Think why don’t they ?? How ca n they get most of what they like ??? And then pull the plug… it’s coming, someday, some week, month or year 😉

  12. Silverfreaky – because when (not if) someone does buy it all off, that 27,000 tons per year will no longer be available at a lower priceor even available at all. Today they need as much as is available at lower cost for manufacturing for as long as possible.

    • silverfreaky | August 6, 2018 at 10:37 pm |

      If I could buy 27,000 tons now at such a low price, any normal person would do so. The quantity would last forever for industrial needs.
      And silver as money has no function at least at the moment. It’s just not liquid.
      Otherwise the price should have gone up a long time ago, that the price is made via the Comex is right, but that nobody wants to buy silver physically is right, otherwise we would have lack of physical material.

      • The second you did, silver would explode and the financial WAWKI would come to a screeching halt. They don’t want that, they don’t want chaos, they want trade and stability, so they acquire slowly at a pace that does not upset the system immediately to get as much PMs as they can. Put in an order for 27 000 mt of silver… Where? How?? You’d probably only get a tiny fraction of this and the system is kaputt. Buy 100 tons, possibly 1 000 or 2 000 or so and get away with the real deal.

  13. “The next few years will be one big surprise for Americans”. I pray everyday and night that this comes to fruition.

  14. With the Chinese Stock Market tanking, now falling back to 3rd place in assets under the US and Japan, it seems Chinese traders would normally be buying gold if it had stayed around $1300. Pretty sneaky of the US to drive down gold prices in the face of trade wars.

    • DisappearingCulture | August 6, 2018 at 11:30 am |

      “…it seems Chinese traders would normally be buying gold if it had stayed around $1300.”
      At a lower price there is more overall buying by Chinese. If not traders then the government and individuals.

  15. No one knows how this ends and that’s why one has financial assets that are a historical store of wealth. Pm’s are a bet/hedge against the global debt. It’s really that simple no need to complicate the situation.

  16. It’s funny but the older generations who live in the South American countries and Asian countries are stocking up on silver coins or ingots and U.S. dollars; The younger generations are doing the same but adding bitcoin… No one seems to be trusting gold..
    India seems to be the greatest hoarders of all, since the government outlawed 50 and 100 rupee bills….
    Just thought you might find that interesting as I did….

    • DisappearingCulture | August 6, 2018 at 11:27 am |

      It isn’t a trust issue S over G, it’s an affordability issue

      • I don’t know… after the government outlawed the 50 and 100 rupee bills then a few months later the government confiscated the gold that had been purchased from the gold sellers.

  17. GREAT ARTICLE AS USUAL!! THANK YOU!

  18. The more I think about it the more I realize as the dollars increases in value the more people will see the price of gold go down and sell while manipulating the price of silver down forcing the population to sell silver as well. Thus restocking US holdings. Didn’t this happen with gold in the 1930’s?

  19. The Fed makes interest on the dollars they created from nothing, all of this interest paid finds it’s way back to the Fed eventually. The Fed right now is paying a portion of the interest paid to them back to the Treasury, so a portion of this total is going in a circle, how much I don’t recall. At any rate, debt owned by the Fed (also created from nothing) is circular in nature and not all of that is lost to the Fed. On the other hand, debt (bonds) owned by foreign investors IS bad and will continue to be bad for Americans. Once the Fed owns all the debt, they wont care about the little people (eaters as we are called) and the real purge will begin. The Fed will continue to buy either on the open market or private market, the bonds of the US Govt., and eventually own everything for nothing! The flys in this ointment are 1) Gold, 2) Guns and 3) Private Property laws,.. all of which are under extreme pressure to be eliminated.

  20. Hi Fed erasure. AGREE.

    My layman opinion is that regardless what happens to BTC vs Fiat vs digitalization, blockchain, distributed ledger systems, etc., gold will remain as a sort of backwater hidden reservoir of money that will be used primarily in local markets. Central banks and sovereign nations hold a decidedly small fraction of the world’s gold (most of it in private hands, jewelry, private bullion holdings etc.) The fact is it will never be amassed in enough quantity by central banks to “corner” the market to effectively “back” a world wide currency, which is what BTC or block chain may aspire to.

    Instead, gold use as money (currency and store of value) will be restricted more to local barter whereby it is physically transacted. The central banks will try to advertise their gold reserves as proof of “backing” but always like before, will abuse this and double count, just as the original Venetian vaulters (yet to be “bankers” that ensued) issued duplicate receipts for those people who deposited their gold for storage and safekeeping.

    Brandon Smith at http://www.alt-market.com made reference to the US being the obstacle to worldwide socialism/new world order/ or whatever you want to call it.

    It will be very interesting to see how the US Govt actually deals with the pesky gold and guns problem. Other gold hoarders (via jewelry) such as India and China, well, the government doesn’t face the problem of gold confiscation and ultimate currency hegemony if the citizens are unarmed. Not trying to whip up hysteria, just cold, hard analysis based on precedent, which we may be lacking due to the US citizens having at least a fair amount of guns, even if only a little PMs, unlike the rest of the world.

  21. Recent article about PEMEX. I bring it to your attention because 25% of global silver supply comes from Mexico.
    https://wolfstreet.com/2018/08/06/uncertainty-grips-troubled-pemex-worlds-most-indebted-oil-company/

    At some point fundamentals will matter. It won’t just be silver that is affected. We in the U.S. would likely also see a huge increase in other energy dependent industries such as agriculture. Mexico provides a lot of the fresh produce we take for granted in our grocery stores.

    Its a long article but this paragraph sums up the continuing PEMEX saga.

    Rating agency Fitch recently poured cold water over AMLO’s big spending plans, warning that Pemex’s onerous tax burden is causing a “deterioration in its credit profile.” If Pemex’s credit rating drops — currently at BBB-, it’s just one notch above “junk” — so, too, will Mexico’s. Fitch warned that financial distress at Pemex could disrupt the supply of oil and gas in Mexico, a situation which could have material social and economic consequences for the country as well as for AMLO.

  22. As I’m sure Steve is aware there is an interesting webinar happening over at PEAK PROSPERITY:- https://www.peakprosperity.com/blog/114265/upcoming-webinar-energy-predicament-sunday-aug-26-4pm-et1pm-pt

  23. Just remember the government debt is investor savings. It’s not a debt as you or would face because the term is just accounting speak for other parties assets stored as bonds in the Fed.. The bond money is purchased at auction because Congress has mandated a policy of bond sales which add up to match the deficit spend. Paying interest is the carrot to get them to buy in. It is the safest possible place for storing the wealth and earns decent interest.
    At maturity the book keeping is reversed and the bonds sums are debited from the Fed savings accounts and credited to the investors checking accounts, or rolled over. The bond money is never used to pay for a dime of debt. The interest this article get all caught up in is created from thin air just as are all federal moneys. In summary bonds are investor welfare.

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