Behold! A Debt Apocalypse Approaches...
Prepare yourself as the bills finally come due.
I’ve been writing about the debt crisis for years, mostly in articles published on CNBC. My biggest concern is the cost of the national debt, which has been rising to exorbitant levels. So far, nothing terrible has happened and I sometimes feel like the boy who cried wolf. But not anymore. Here’s why, and I urge everyone to pay attention.
Our national debt has reached $37 trillion and the cost of paying interest on the debt is now about $1 trillion a year, or $2.7 billion a day, an unsustainable amount that is greater than the defense department budget. Here are the current factors that cause me to expect that a crisis is very near:
The current average rate we pay on the national debt is 3.35%. One third of the national debt, approximately $9 trillion, is maturing within the next 12 months, and about half of that amount before August of his year. Today’s interest rates are higher than the average rate we pay on the debt, so the refinancing will be more costly, adding billions to the total amount we pay.
Trump’s “Big Beautiful Tax Bill” which, as I write, is having a tough time getting passed in Congress, will, according to the Congressional Budget Office, increase the deficit by $4 trillion over the next ten years. (Did I use the word “unsustainable” yet?)
The U.S. debt has been downgraded by all three credit agencies.
Here’s what I fear will happen soon.
In the coming weeks, as the Treasury issues bonds to refinance the debt, there may well be a mini “buyer’s revolt” among the traditional buyers of U.S. Treasuries. These buyers include the largest holders of our debt, China and Japan. They will likely continue to buy our bonds but will demand higher interest rates to reflect the deteriorating fiscal position of the United States. This could lead to a spike in interest rates, which would in turn create havoc for all Americans who finance their purchases of big-ticket items like cars and major appliances. And, of course, it will cause a spike in mortgage rates will weigh heavily on the housing market. The stock market reaction will follow.
Those who know me know that I tend to be an optimistic kind of guy, so comments like this are rare for me and go against my nature. But I am really worried now, and decided to share these thoughts with you. Your comments are most welcome.
