When the FED raise the fund rate, the interest burden of the
government debt rises with it.
US national debt-to-GDP ratio has been over 100% for a few years now, it is 121.84% now and see no sign of easing. What does that mean? It means it is like a person spent 20% more than he makes!
The Congressional Budget Office (CBO) projected that annual net interest costs would total $399 billion in 2022 and nearly triple over the upcoming decade, soaring from $442 billion to $1.2 trillion and summing to $8.1 trillion over that period. CBO's projection was done in May when the 10 year treasury notes yield at 2.9%, it is 3.88% now!
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| https://www.pgpf.org/ |
Remember the US GDP in 2022 is $20 trillion. If as
projected, majority of the federal revenue would be spent in the interest
payment than anything else. This rate is not sustainable unless the government
has other magics to reduce the budget deficit drastically. The budget deficit
reduction needs to be faster than the interest compounding.
Also in the private sector, business relies on cheap (if not
zero) borrowing cost would face severe challenge. Last time, government bailed
them out. This time, the government is in no better shape and may not be able
to help much. When more and more companies get into trouble in 2023, it could
be cascading like snowball. I predict the federal fund rate would have to come down at that
point.
