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

by Steve St. Angelo, SRSrocco:

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:

US-Total-Debt-vs-Average-Interest-Percentage-Rate-NEW.png

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:

US-Interest-Expense-Historical.png

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:

US-Interest-Expense-Fiscal-2017.png

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.

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