While the impacts of higher rates ripple through the economy, they also increase the cost of issuing bonds used to finance government operations, which affects everyone.
Bonds have been used to meet federal budgetary needs since the Revolutionary War. Alexander Hamilton, a founding father whose portrait is on the $10 bill and who tackled the Revolutionary War debt as the first Secretary of the Treasury, stated, “A national debt, if it is not excessive, will be to us a national blessing.”
Is the country at a point where our national debt is excessive? The answer may differ depending on who is asked.
The national debt is obviously rising fast, with the federal deficit more than doubling compared to last fiscal year. As rates rise, interest costs to manage the debt have grown significantly, climbing to nearly $1 Trillion annually, according to the Federal Reserve Bank of St. Louis. The St. Louis Fed also tracks the national debt as a percent of GDP– now over 130%!
Excessive, the national debt may be.
While rising rates affect the interest paid on the national debt, it also increases the pressure to sell an adequate number of Treasury bonds to cover the debt. Government bond yields may rise further based on market demand and markets’ expectations for how growth and inflation will evolve, thus increasing borrowing costs. It doesn’t help that the two biggest buyers of U.S. government debt, the Federal Reserve and China, are buying less; the Fed through quantitative tightening (QT), and China perhaps due to shifting internal economic priorities.
So, where do rates go from here? I’ve included below two articles to provide more context on the issue of rising rates and the national debt. Take a look- and connect with me here to let me know what you think about the federal deficit!
~ Brian Kasal- The Leadership Matrix
P.S.- Did you see my last Leadership Matrix post? The House Makes History- it’s the Last Thing the Country Needs
If you enjoyed this post, please consider sharing it on your favorite platform below.