Let’s talk about debt. In 2018, the federal government spent $523,017,301,446.12 in interest (a 14% increase over 2017) on what is now over $22 trillion (a 7.5% increase over 2017) in debt. The divergence between those two rates of increase is important.
The interest expense is growing faster than the amount of outstanding debt because interest rates have risen. When I produced this chart in September, the average interest rate on government debt over the previous year was 2.378%. In February 2019, it was 2.581%.
Although 10Y yields topped out as we expected in October, the average interest rate on outstanding debt has continued to increase. Combined with the fact that outstanding debt is accruing at over $1 trillion per year, this presents a very serious problem.
It also offers some very important clues as to what the Fed and other central banks will do over the coming year.
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