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 $21.16 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:
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
$21.1 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:
(interest expense on debt outstanding, Treasurydirect.gov)
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:
(monthly interest payments, Treasrydirect.gov)
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.
What would happen to the annual U.S. interest payment if the average rate
was the same as in 2000 at 6.4%? Good question. The following
chart provides the answer:
If the average interest rate increased to 6.4%, the U.S. Treasury
annual service on its $21.1 trillion in debt would surge to $1.3 trillion,
nearly three times larger than the $460 billion it will pay this year.
That is a BIG NUMBER.
There is no way the U.S. Government will allow the interest rates to rise
as it is already dealing with a $566 billion budget deficit for the first ten
months of 2017 (source).
If interest rates raised just to a typical 5%, that would push the U.S.
interest payment up above $1 trillion. This would more than double the
budget deficit to over $1.1 trillion a year.
The Fed and Central Banks only have one way to go, and that is increasing
debt levels and lower interest rates. If they do not continue with that
policy, then the entire financial system comes crashing down… and DOWN IT
WILL.
To give you an idea just how insane the ONE-DAY $318 billion increase in
U.S. debt is on its annual interest payment, take a look at the chart below:
The U.S. Treasury will have to pay out an additional $7 billion interest
payment for the extra $318 billion in debt it increased in just one day.
Again, that $7 billion interest payment is based on an average 2.2%
rate multiplied by the $318 billion in debt. Now, if we compare
the additional $7 billion of U.S. interest expense to the total value of the
silver SLV ETF of $5.8 billion, we can plainly see that printing money, and
increasing debt becomes a valuable tool for Central Banks to cap the silver
price.
By the U.S. Treasury issuing another $318 billion in debt and another $7
billion on top of that in interest payments, this should have some impact on
the precious metals prices, but it doesn’t. How can the U.S. Government
increase its debt in one day by an amount that would purchase all above
ground silver investment inventories six times over, and not even impact its
price???
That’s correct. The total 2.6 billion oz of physical silver
investment in the world is currently valued at $52 billion (2.6 billion oz X
$20). Thus, the ONE-DAY $318 billion U.S. debt increase would
consume over 15 billion oz of silver at $20 an ounce.
So, why does the U.S. Treasury continue to increase its overall debt and
interest payments? Because it’s in the best interest of the U.S.
Treasury to prop up the 99% of Americans who are invested in the markets.
Also, the U.S. local, state and federal governments receive taxes on
salaries, real estate, businesses, investments, etc. If the markets
crashed, so would U.S. government tax revenues. Thus, the U.S.
Government would collapse along with the markets as asset prices imploded.
Lastly, the precious metals are one of the best safe havens to be in when
the Fed and Central Banks lose control of propping up the markets.
Unfortunately, 99% of Americans will find about gold and silver a day
late and a dollar short.
Check back for new articles and updates at the SRSrocco Report.
