David Stockman’s Contra Corner
What a day for another $106 billion imperial boondoggle. There is not one dime in “Joe Biden’s” war package that enhances the safety and security of the American homeland, yet all of it is being blithely charged to Uncle Sam’s vastly over-extended credit card.
Nor should you take our word for it. What’s left of the Fed-tortured bond market cried out for help this AM, tagging the 5.00% level on the benchmark 10-year UST (purple line) for the first time since June 2007.
But here’s the thing. Back then, the public debt (yellow line) was $8.8 trillion, meaning every 100 basis points of increased yield added $88 billion to annual debt service. Today, of course, the public debt is $33.5 trillion, and the incremental debt service on 100 basis points will amount to $335 billion or nearly 4X more.
Public Debt Versus Yield On 10-Year UST, 2007 to 2023
Unfortunately, 1oo basis points of higher yield isn’t the half of it. As of August 31st, the weighted average yield on the public debt was only 2.92% because during the Fed’s decade long spree of reckless money-printing the US Treasury was able to refi the public debt at absurdly low rates, including at the 0.50% bottom on the 10-year UST in July 2020.
Alas, what comes around goes around. Now the entire yield curve is trading at 5% or above, meaning that all of that ultra-cheap debt will be maturing for years to come, only to be replaced with much higher yields as far as the eye can see. At the moment, the gap between the embedded carry cost of 2.92% and an at-market level of @5.22% would amount to incremental debt service cost of nearly $800 billion per annum!
That’s right. There is a fiscal elephant in the room nearly the size of the nation’s monstrous defense budget itself, yet the semi-comatose occupant of the Oval Office chose this moment to indulge in the absolute worst game of log-rolling politics we have witness during a half-century of observation. To wit, the “Joe Biden” boondoggle includes:
- $61 billion for the Ukraine warhawks;
- $14 billion for virtue-signaling against Hamas;
- $14 billion for the GOP Border War Howlers;
- $14 billion for various bleeding heart “humanitarian” purposes;
- $3 billion of walking around money for all the squeaky wheels not oiled above.
Still, do these clueless fools not understand they are now starring fiscal catastrophe square in the face? As of Q2 2023 the annualized rate of interest expense on the public debt clocked in at $909 billion, which represented a doubling of the level which prevailed when the voters last put a Republican in the White House to, well, rein in the red ink!
Be seeing you
