David Stockman and the co-Founder of ACC Hunter Lewis have both long talked about this thing that CNBC says “no one” is talking about.
Our debt has ballooned under Obama but we’ve been able to service this debt at ultra-low rates. However rates don’t stay low forever, even and perhaps especially when it feels like they will. When rates move up just a bit the cost of servicing our debt is going to increase big time. That will put significant pressure on the economy.
In 2009, the year President Obama took office, the national debt held by the public was $7.27 trillion. At the end of fiscal 2016, that had soared to approximately $14 trillion. Given that our marketable debt doubled from 2009 to 2016, it’s remarkable that the annual cost of the interest on the debt rose far less, from $185 billion to $223 billion. Thank you, Federal Reserve. Could this be the main reason interest rates were kept so low?
We now face a potential economic catastrophe as the long period of very low interest rates comes to an end. If the Fed raises interest rates in December, this may be the beginning of a climb back to historic rates. What are the historic rates, you may ask? We calculate that the average rate paid on the federal debt over the last 25 years was 5 percent. In addition to the Fed’s upcoming action, wage pressure and other such signs are hinting at a rise in inflation which will also add to the pressure on interest rates. And if we get back to that 25-year interest rate average, watch out!