RISING INTEREST RATES INFLATE GOVERNMENT SPENDING

Yields on U.S. treasury securities have been rising with interest rates and the federal government’s debt service payments are rising with them.

The return on the benchmark 10-year treasury note will average 2.4 percent this fiscal year, compared to 1.4 percent in the previous year, the nonpartisan Congressional Budget Office (CBO) has predicted.

During the current federal fiscal year, which began 1 October, the government had paid about $311 billion in interest through 31 May this year, 30 percent more than the same period a year earlier, according to treasury data analyzed by The Wall Street Journal.

Interest payments will total $399 billion this year, compared with $352 billion in the previous fiscal year, the CBO said.

Fixed rates on government bonds and notes were trending down in 2019, then sank to record lows as the U.S. Federal Reserve pinned its key interest rate at 0.25 percent to keep the economy lubricated during the COVID crisis.

Interest rates began trending up earlier this year and the Fed began a series of rate hikes in March that have lifted the 0.25-percent figure to 1.5 percent now, with another boost due this month.

The federal debt—which is held by the tax-paying public—is slated to reach its highest-ever levels as a share of the economy over the next decade, according to the CBO. 

The rising debt’s demands on the treasury are compounded by rising interest rates on that growing debt.

As the government’s debt rises and interest rates climb, legislators will be under pressure to spend less in other areas such as defense and health care, analysts warn.

“Rising interest rates grow our debt and increase the burden on the next generation, forcing them to pay more for our past than for our future,” CEO Michael Peterson of the nonprofit Peter G. Peterson Foundation, which works to reduce government debt, said in comments cited by the WSJ.

The U.S. owes about $30 trillion and will pay about $8.1 trillion in interest over the next 10 years, the CBO has calculated.

TREND FORECAST: Given political and economic realities, taxes cannot be increased enough, and spending cannot be cut enough, to reduce the deficit meaningfully.

Spending cuts and tax increases both will be needed to bring the federal budget back to some level of rationality.

TREND FORECAST: Congress will make no headway in settling the budget tussle until the leadership of both parties in the House and Senate are replaced with a political party that concentrates on the needs of the nation, does not support wars and the military industrial complex, and works to build one of our Top 2022 Trends, “Self-Sufficiency”. 

A key element of anti-globalization/anti-establishment platforms will be a call to restore the individual and unique arts, crafts and trade talents that once identified countries… but has all but vanished with globalization

With its eye on the future, China’s “dual circulation” economic policy is leading the trend (“China Announces “Dual Circulation” Economic Policy,” 9 Sep 2020).

Since the 1980s, China has grown its economy by emphasizing manufacturing and exports, a policy dubbed “external circulation.”

Now China has cultivated an expanding middle class and moving up the ladder lower class that is capable of supporting its own consumer economy—an “internal circulation” of goods and services—where its population of 1.4 billion people buy products, create fashion, sounds and styles that are “Made-in-China.”

The dual circulation policy still emphasizes making goods for export and generating income from foreign sales, but places equal weight on consumer spending that will leave China’s economy less dependent on the ups and downs and geopolitical clashes of world markets.