Authored by Mark Cudmore, Bloomberg macro strategist,
US yields [Ed. Note: interest payments] have ongoing upside pressure from the debt-ceiling debate. Even if a one-year extension is achieved this year, as House Speaker Kevin McCarthy is reported to be proposing, that just creates a far greater problem in a presidential-election year.
Everyone cites 2011 as the playbook for debt-ceiling stress: While those fraught negotiations may be the closest precedent we have, the 2023 episode is likely to be far worse for markets.
The backdrop for 2011 was that everyone viewed the debt ceiling as a purely technical issue. The US government debt pile back then was less than 100% of GDP and yields were low. The estimated annualized payments to service the debt were less than $450b per year. That sounds a lot, but it was a much smaller amount than four years earlier, so the path wasn’t worrying anybody.
It’s a very different situation now. US debt is above 120% of GDP and, far more importantly, the estimated annualized payments to service that debt rose to $773b, as of the end of January. Even more worryingly, they are rising at an almost parabolic rate due to what’s happening to yields — that number is has risen by more than $300b in just a year!
On the majority of days, it’s an issue for Treasuries that’s entirely dominated by other trading factors — but it will lead to random yield-blowouts in the future.
The estimated annual costs of servicing the US debt exceeded $800b as of the end of March — that’s more than 40% higher than any time prior to the past year.
One large extra warning: The chart above is only until the end of January. Since then, US yields have risen more than 20bps all the way out the curve.
The costs are still rising almost parabolically, so expect headline excitement when the $1T figure is likely reached later this year.
In a rational country, we would immediately before Sept 1st:
(1) 10% cut across the board (discretionary & non-discretionary)
(2) lower debt ceiling 1/2 T starting Oct 1st (FY24)_
(3) Congressional Staff budgets cut 50% for FY24
(4) salary freeze on all federal employees
(5) 10% reduction in federal workforce FY24 (this is in addition to 10% cut)
(6) freeze all federal funds going to NGO’s (abroad & domestic) FY24
(7) immediate cutoff of funds for Ukraine
(8) stop contract U.S. Post Office has with Amazon
(9) open to public the breakdown of cost and programs of intelligence community
(10) funding of 287(G) Program on the book with ICE
(11) stop funding all modes of transportation for illegal immigrants inside or outside US
(12) Simple format for Federal Budget – no % just raw dollar amounts Line Items per agency
(13) shut down Treasury going to Federal Reserve to print dollars for spending –
(14) what is legal regard the Fed in reining them it – top priority – they return to the Statutory Authority
(15) defund WHO – United Nations – World Bank
I wonder if any Senators or Representative have ever gone thru the Budget line item by line item.
It might be a excellent process for Leadership that everyday, they go through one agency just to see for themselves what has been created. And have it on C-Span or any media that want to cover and Live-Stream
Final suggestion – every citizens should do the same thing – with the technology it is free on the internet – type in Federal Budget and there is it. But the present Budget is so confusing but the House could have simple PDF with each agency with its line items FY23 & FY24.
Just some thoughts – lets hope for once, might be the last opportunity we, as citizens, have.