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#1 Interest payments on our national debt will slowly rise by $150,000,000,000, as new debt is issued at the new higher rate, & as short-term debt is moved to long-term debt.
So what?
Well, to pay for the newly added interest expense, we can:
A) cut spending by $150 Billion to offset this new added expense
B) raise taxes to pay for it, which slows economic growth
C) print more Monopoly money, adding to our money supply aka "M1"
If we choose A), cut spending, where will Congress cut $150B from? Is Congress even capable of cutting $150B in spending?
If we choose B), raise taxes, Biden will have to renig on his promise not to raise taxes on people who make <$400k. 99.38% of Americans make <$400k, which leaves only .62% of Americans to increase taxes on to get the $150B from. Or, they can increase corporate taxes, which causes corporations to raise prices, which increases inflation.
If we choose C), printing more Monopoly money, it will fuel even more inflation:
What should the Fed, Congress, and Joe Biden do, and why?
None of this is to disagree that we should have gotten our financial house in order the 2nd half of Obama & during Trump, and recognized that the interest ray the USG pays on the National Debt wouldn't be near 0% forever.
However, is there any indication that corporations reduced prices when they got a 40% reduction in their income tax rate? Or that it even suppressed price increases?
in 2016, CIT (corp inc tax) generated $312B in taxes. In 2017 CIT generated $245B, by 2019 it was $217B, despite continued success at the corporate level.
The Fed has raised interest rates many times before without anybody else having to do anything else, and the sky has not fallen. Why should this time be any different?
Because the last time they did it, we didn't have $30 TRILLION in debt.
I’ll give you this - you have correctly identified the fact that Presidents, and government in general, can’t do much to control the economy. Recessions, stock markets, unemployment should not be blamed or credited to the President.
What the Fed should do is follow up with more interest rate hikes until inflation comes back down to reasonable territory. Rescind the Trump tax cuts to ameliorate effects on the deficit. As you said, tax increases slow economic growth, which is our problem right now. Inflation = too much growth.
You're delusional. The reason for the rampant inflation is the excessive spending and the war on fossil fuels. Both on Biden.
Markets are pricing in the Fed raises, the question is how many? How much?
We might get into a situation where the Fed raises rates, but the 10 yr Treasury falls which would actually bring mortgage rates back down.
My advice to anyone, if you have cash put it into assets.
Also, we dodged a bullet with the Build Back Better bill being cancelled, inflation would have been unimaginable with Bidens plan to print off another $4T which is legalized theft to the working class. Unfortunately there are many uneducated people on economics out there that keep voting Democrat.
Yes money is still cheap. If rates go way up easy money will evaporate and the economy is going to tank as high debt borrowers can't push off their reckoning anymore
The Fed has raised interest rates many times before without anybody else having to do anything else, and the sky has not fallen. Why should this time be any different?
This can be easily simplified to explain. It's the amount of deficit spending that has increased the National Debt.
Right before Bush 2: Debt $5.7T, 90-day Treasury rate 5.73% = $326B in interest
5% is the approx average over time of what the rate has been.
But when Bush left office, the Debt had pretty much doubled (wars + beginning of Great Recession) to $10.7T, and the Fed had pushed that interest rate down to 0.11%.
For 9 years, the rate stayed in the tenths of 1%.
By the time Obama left office, the debt had almost doubled AGAIN and now stood at $20T but the rate was the same. So yes, we're starting to pay a LOT of interest, but at a ridiculously low rate.
And now that we stand, just 5 years later, at an unofficial $28.4T debt - about 5x more than just 20 years ago - that we have to pay interest on, a 1% increase in what we have to pay = $284B.
Quote:
"without anybody else having to do anything else, and the sky has not fallen.
that's because the National Debt wasn't such a massive number.
So, regardless of whatever else we would "like" the Federal government to spend money on, it has to pay interest on the debt. We've "gotten off easy" for ~14 years by the interest rate being a fraction of the historical average.
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