Thursday, September 6, 2012

Reaching A Debt Milestone

Yet another milestone has been reached and, ironically, right in the midst of the Democratic 2012 Convention.  According to the Treasury Department's "Debt to the Penny" website, the total debt held by the public and intragovernmental debt has reached:

The debt held by the public is 70 percent of the total and intragovernmental agency lending accounts for the remaining 30 percent.

In case you've forgotten, the debt ceiling now stands at $16.394 trillion.  Once that point is reached, we're sure to see lots of fun and games involving a highly partisan Congress.

Here is a graph showing the rapid growth in the public debt between 1991 and 2011:

Fortunately for Washington, interest rates on the debt are extremely low.  At the end of July 2012, the average interest rate on the marketable debt was 2.130 percent, down from 2.387 percent a year earlier. The interest rate on non-marketable debt was 3.638 percent, down from 4.087 percent a year earlier.  This results in an average weighted interest rate on 2.621 percent on all outstanding debt.  To really simplify things, if we take the $16 trillion of debt and multiply it by the average interest rate of 2.6 percent, the total annual interest owing on the debt works out to $416 billion.  

Here is the interest expense for the first 10 months of fiscal 2012 noting the one time accounting method change in July:

If interest rates on the outstanding debt ever return to historical norms in the 5 to 6 percent range, interest owing on the $16 trillion will rise to between $800 billion and $960 billion annually.  To put that into perspective, the entire deficit for fiscal 2012 is expected to be just over $1.1 trillion.

Imagine for a moment what will happen when over 40 percent of all federal revenues must be allocated to pay interest on the debt.  So much for the social safety net!

1 comment:

  1. So the govt will do anything it can to prevent the interest rate from going up?