As a seasoned economist with decades of experience under my belt, I can’t help but feel a sense of deja vu when I see these eye-popping figures on the interest costs of U.S. Federal debt. It seems like we’ve been here before, and not too long ago either. The relentless rise in debts, the skyrocketing interest expenses, it all brings back memories of the late 70s and early 80s when I was just starting out in this field.
In the second quarter of the year, the United States Federal debt’s annual interest expenses exceeded $1.1 trillion, and the government is currently shelling out approximately $3 billion every day to cover its debt interest payments, which sets a new record.
As stated by Kobeissi Letter on social media platform X (previously Twitter), the current interest costs on U.S. Federal debt are now three times higher than they were a decade ago, and have nearly doubled within the past 2.5 years.
According to reports, should the Federal Reserve lower its interest rate by 1%, and government bond yields decrease by an equivalent amount, the daily interest costs would still be fixed at approximately $2.5 billion.
That, the outlet added, would be “more than double the average paid in 2009-2019.”
Incredible figures: The cost of daily interest on U.S. Federal debt has skyrocketed to an astounding $3 billion per day. This represents a staggering three times as much as was paid ten years ago, and it’s more than doubled in just 2.5 years. In Q2 of 2024, the total annual interest costs on Federal debt reached an astonishing $1.1 trillion. Even if the Federal Reserve…
— The Kobeissi Letter (@KobeissiLetter) September 5, 2024
In 2022, the Federal Reserve began raising interest rates as a means to control inflation. This trend continued until late 2023 when the Fed Funds interest rate reached 5.5%. Contrary to expectations of potential interest rate cuts this month, the nation’s debt has instead increased significantly, currently standing at over $35.3 trillion.
According to the Kobeissi Letter, the confluence of escalating interest rates and mounting national debts has made interest payments among the most significant annual expenditures for the U.S. within just a few years.
Significantly, equities have shed approximately $1 trillion in market value during a single trading day due to a substantial sell-off affecting large-cap tech stocks. This selling spree caused the value of Nvidia (NVDA), a company that has been gaining momentum based on AI growth predictions, to decrease by over $360 billion in market capitalization, taking into account its post-market decline as well.
Apart from Nvidia experiencing a decline in growth, two key manufacturing indicators have consistently shown sluggish performance in the interest rate-affected sector. Later this week, we anticipate the August US employment report, which may cause more market fluctuations. Last month’s unexpected rise in unemployment rates led to a dip in the stock market.
Significantly, based on data from Investopedia, September is the unique calendar month that has shown negative returns in the stock market over the past 98 years. This phenomenon is called the September Effect, where the market tends to perform poorly during this month due to historical trends.
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2024-09-07 01:56