The U.S. government can manage its record new $28 trillion levels of debt, Jerome Powell, chair of the U.S. Federal Reserve, said in a 25 March interview on National Public Radio.
“Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,” he said.
“When the economy is back to full employment and taxes are rolling in and we’re in a strong economy again… it will be appropriate to return to the issue of getting back on a sustainable fiscal path,” Powell acknowledged.
“That time is not now,” he added.
However, policymakers should work to brake the debt’s rise once the economy has recovered, he added.
Three rounds of federal economic stimulus have swelled the debt from 79.2 percent of GDP at the end of fiscal 2019 to 102.3 percent by the time the current fiscal year ends this 30 September, the Congressional Budget Office has said.
Because the Fed has held interest rates so low, the U.S. currently pays less in interest than it did in 2007 during the Great Recession, although the amount owed has tripled, treasury secretary Janet Yellin noted last week in comments quoted by the Wall Street Journal.
She also called for Congress to raise revenues at a later date to pay for higher spending.
“About one in every seven dollars we collect this year is going out in interest expense,” Senator Rick Scott complained on 23 March on Fox Business.
“Inflation is going up and it’s caused by a federal government and Federal Reserve that doesn’t know how reality works,” he said.
TREND FORECAST: The Federal Reserve has the power to keep interest rates close to zero, so they can cheaply service the massive government debt. The Fed will continue to buy massive amounts of treasury and corporate securities, i.e. “junk bonds,” which it currently does at a rate of $120 billion a month.
However, as we have continually detailed in the Trends Journal, inflation rates will sharply rise and when they do, so, too, will interest rates. Thus, the higher the interest rates, the more it will cost to service the debt load. As we have noted in this issue, the effects of the rising rates are being evidenced by the declines in the housing market sectors.
Should the Fed decide to keep interest rates low despite rising inflation to keep the markets and economy on their highs, inflation rates will spike, the U.S. dollar will decline, and gold and silver prices will spike as investors seek safe-haven assets.
