Over $9T of Federal Debt Will Mature in the Next Four Years(thesoundingline.com)
thesoundingline.com
Over $9T of Federal Debt Will Mature in the Next Four Years
https://thesoundingline.com/over-9-trillion-of-federal-debt-will-mature-in-the-next-four-years/
56 comments
Am I wrong in thinking that this doesn't bode well for the value of the dollar over time, and will likely cause hyperinflation?
Yes, you are wrong that it will likely cause hyperinflation. Even if the Fed simply monetized that debt (which it won’t do) you might get some inflation, but nothing close to HYPERinflation. What’s more likely, as the article states, is that more investor money will go to the government rather than mortgages or commercial loans, which will slow the economy, drive up interest rates, and potentially cause deflation.
A lot of the new bonds will replace what's already been loaned to the government, so what will matter is the delta between the interest rates on the old bonds and new ones as well as whether the new bonds have different maturity times. So how much rolling the debt over will drive up interest rates is debatable though the issuance of new debt to finance the current deficit is more likely to do that.
Of course, that assumes that there are buyers for the rolled over debt. The biggest source of financing over the past 20 years (China) isn't exactly happy with the US government right now. That could drive up interest rates on the bonds and cause problems.
Of course, that assumes that there are buyers for the rolled over debt. The biggest source of financing over the past 20 years (China) isn't exactly happy with the US government right now. That could drive up interest rates on the bonds and cause problems.
Monetizing the debt won't cause hyperinflation... once. Doing it repeatedly may well do so.
> Am I wrong in thinking that this doesn't bode well for the value of the dollar over time, and will likely cause hyperinflation?
Yes.
The effect of federal debt on money supply is de minimis. Much more important are economic growth (i.e. money demand), lending (i.e. money supply) and rates (i.e. the "price" of money).
Yes.
The effect of federal debt on money supply is de minimis. Much more important are economic growth (i.e. money demand), lending (i.e. money supply) and rates (i.e. the "price" of money).
As others have pointed out, not hyperinflation. Hyperinflation requires a pathologically broken central government. One of the things that prevents that from happening in the U.S. is that the Federal Reserve is a quasi-public institution with a fixed mandate--low unemployment, moderate inflation. (Why moderate? Because a small amount of inflation incentivizes investments and consumption by preventing people from sitting on cash.) But it would be naive to say that the U.S. could never get there.
The bulwark that protects the Federal Reserve has been steadily attacked from the right since the financial crisis. The GOP almost revolted against Bush for the bail-out, and because the government was slow to respond and did so anemically the Federal Reserve stepped into the void with massive infusions of cash. This resulted in cries for the Federal Reserve's independence to be diminished. Such opponents were never forced to reconcile with the fact that the Federal Reserve saved our bacon.
Elsewhere, on both the left and right, you have the constant reminders that fiscal debt can be "fixed" by inflating away the debt. If our political culture continues to internalize that notion then at some point when things become more dire we may actually attempt it. But in as much as it's a viable approach, it could only possibly work from a position of fiscal and monetary strength, a position we would surely not be in were we seriously contemplating it.
The bulwark that protects the Federal Reserve has been steadily attacked from the right since the financial crisis. The GOP almost revolted against Bush for the bail-out, and because the government was slow to respond and did so anemically the Federal Reserve stepped into the void with massive infusions of cash. This resulted in cries for the Federal Reserve's independence to be diminished. Such opponents were never forced to reconcile with the fact that the Federal Reserve saved our bacon.
Elsewhere, on both the left and right, you have the constant reminders that fiscal debt can be "fixed" by inflating away the debt. If our political culture continues to internalize that notion then at some point when things become more dire we may actually attempt it. But in as much as it's a viable approach, it could only possibly work from a position of fiscal and monetary strength, a position we would surely not be in were we seriously contemplating it.
I think though the question is how does it bode for the dollar... relative to every other currency.
I'm not saying it won't have any impact but the dollar has been attractive for all the usual reasons for a long time, and over the course of a lot of events that folks predicted would make it less attractive.
I'm not saying it won't have any impact but the dollar has been attractive for all the usual reasons for a long time, and over the course of a lot of events that folks predicted would make it less attractive.
To be more specific: where else is that money going to go? There's a number of small stable nations out there but none sell bonds in sufficient quantity to meet investor demand. The EU isn't a coherent enough financial sector to absorb that demand, nor stable enough. China isn't selling (and would be risky) - if you have large quantities of cash you need to park the US is still your best option unless you want to get into commodities and nothing is stable enough there.
When inflation is "merely" bad, a dollar loses half its value in a few years.
In hyperinflation, a dollar loses half its value in a few minutes.
The former is certainly possible we decide we want to maintain low taxes and big spending after investors stop buying bonds (hard to say when that happens).
The latter would mean people have lost faith in the government's ability to carry out even its most basic functions.
In hyperinflation, a dollar loses half its value in a few minutes.
The former is certainly possible we decide we want to maintain low taxes and big spending after investors stop buying bonds (hard to say when that happens).
The latter would mean people have lost faith in the government's ability to carry out even its most basic functions.
"government's ability to carry out even its most basic functions."
by looking at the current political circus it certainly seems that way.
by looking at the current political circus it certainly seems that way.
Why is this a news? Doesn't federal debt mature all the time?
it isn't, someone wrote about it on an irrelevant site, someone posted it here and it trends here
it just opens the discussion on this general topic, but nothing really about the specific thing being discussed
it just opens the discussion on this general topic, but nothing really about the specific thing being discussed
Can someone ELI5 what this means?
The US Government spends more money than it takes in taxes. In order to finance the difference it takes out loans (in many ways just like you might take out a loan to buy something). These loans take the form of government bonds.
Various people/organizations buy these bonds and give the US government money. Later on these bonds "mature" and those people get their money back plus some interest.
This post is saying that about 9 trillion dollars worth of these bonds will mature in the next 4 years so the US government will need to come up with that much money to pay the bondholders. The way the government does this (for the most part) is by "rolling over" the debt. This means the government will issue new bonds that pay out at some point in the future.
In some ways this is actually great for the government because interest rates are at very low levels right now, which means the new bonds will (in most cases) have a lower interest rate than the old ones.
Various people/organizations buy these bonds and give the US government money. Later on these bonds "mature" and those people get their money back plus some interest.
This post is saying that about 9 trillion dollars worth of these bonds will mature in the next 4 years so the US government will need to come up with that much money to pay the bondholders. The way the government does this (for the most part) is by "rolling over" the debt. This means the government will issue new bonds that pay out at some point in the future.
In some ways this is actually great for the government because interest rates are at very low levels right now, which means the new bonds will (in most cases) have a lower interest rate than the old ones.
>In some ways this is actually great for the government because interest rates are at very low levels right now...
Just what I came here to mention. The debt that matures will almost certainly have had a higher interest rate than whatever the amalgamated rollover rate will be.
Just what I came here to mention. The debt that matures will almost certainly have had a higher interest rate than whatever the amalgamated rollover rate will be.
So right now the yield curve is inverted. This means the demand for medium term government bonds is high, so their interest rate is low (lower than short term).
https://www.gurufocus.com/yield_curve.php
Historically this means a recession is coming. The reason is that investors are thinking that other investment options are not good, so they are parking their money in safe bonds.
Anyway, this is good for government dept I guess.
Government dept is held mostly in short term, so the percentage of government spending used to service dept is very quickly tied to interest rates. Things can go bad fast if interest rates go up.
https://www.gurufocus.com/yield_curve.php
Historically this means a recession is coming. The reason is that investors are thinking that other investment options are not good, so they are parking their money in safe bonds.
Anyway, this is good for government dept I guess.
Government dept is held mostly in short term, so the percentage of government spending used to service dept is very quickly tied to interest rates. Things can go bad fast if interest rates go up.
[deleted]
One buyer, in particular, most likely will stop buying and that is China.
Maybe, but China only holds about USD1T in US bonds. With the majority of that not maturing in the next four years.
China has fluctuated between being a net buyer and net seller recently (https://ticdata.treasury.gov/Publish/mfh.txt)
If China stops buying then they'll lose their competitive advantage compared to regional neighbours with the US.
when you have sovereign-nation-levels of wealth, there aren't many other sane places to park your money.
[deleted]
Also keep in mind that right now, debt is often monatory creation. If this debt is reimbursed, it might slow the economy and might create a deflation and push the growth of GPD to th negative (GPD is a bad indicator, but for stuff like that it is quite usefull). Its not likely, but still, people often forget that debt is good for our current economies.
That's extremely difficult to explain for many, many reasons.
Ignoring a great deal, basically that debt either needs to be paid off when it matures or rolled over into bonds e.g. issuing debt to receive cash that can be used in paying off those bonds.
Now, how that will affect the USD is where things get complicated. Will a higher interest rate be needed on new financing to attract investors? Will the Treasury have cash on hand to cover paying off all of those?
Assume they goto the market to refinance all of those bonds and have to pay a higher interest rate: this means tax payers have to pay more taxes, and get less services because more of their money is going to interest payments on this debt. Or perhaps they can only find investors willing to buy 8 trillion in new bonds, then that means the budget needs to cut out 1 trillion for that year in services, just to give a couple ways how this could play out.
Everyone has their own idea of what will happen and will speculate accordingly. Some might think interest rates will explode, of the Fed might cut. Maybe Foreign flows will not be reinvested and affect the USD accordingly. Etc, etc, etc...
Ignoring a great deal, basically that debt either needs to be paid off when it matures or rolled over into bonds e.g. issuing debt to receive cash that can be used in paying off those bonds.
Now, how that will affect the USD is where things get complicated. Will a higher interest rate be needed on new financing to attract investors? Will the Treasury have cash on hand to cover paying off all of those?
Assume they goto the market to refinance all of those bonds and have to pay a higher interest rate: this means tax payers have to pay more taxes, and get less services because more of their money is going to interest payments on this debt. Or perhaps they can only find investors willing to buy 8 trillion in new bonds, then that means the budget needs to cut out 1 trillion for that year in services, just to give a couple ways how this could play out.
Everyone has their own idea of what will happen and will speculate accordingly. Some might think interest rates will explode, of the Fed might cut. Maybe Foreign flows will not be reinvested and affect the USD accordingly. Etc, etc, etc...
Interest rates will go up.
I mean, maybe. But historically speaking that hasn't necessarily been the case.
for what? mortgages? car loans? what else?
US Treasuries are considered the safest types of bonds (confining our discussion only to the US bond market). They are backed by the full taxation power of the US government and so are extraordinarily unlikely to default.
In that sense, they set the "risk-free rate of return" by which other investments are baselined. Not happy with the 2.5% (or whatever) on a Treasury? Well, you might want to invest in a state/municipal bond, or a company's bond offering, mortgage-backed-securities, or stocks. You would only invest in those riskier investments if they promised to pay you a rate higher than the "risk-free" rate of Treasuries.
In that regard, rising Treasury rates increase the market-clearing interest rates on any borrowing which is considered riskier than the US government's likelihood of non-payment, so in short, on all other sorts of borrowing. (On fringes, this may not be the case where statutory limits apply, such as on credit-card default rates. If the risk-free rate rises high enough though, such lending might be curtailed in favor of simply moving down the risk ladder if the returns become artificially compressed.)
In that sense, they set the "risk-free rate of return" by which other investments are baselined. Not happy with the 2.5% (or whatever) on a Treasury? Well, you might want to invest in a state/municipal bond, or a company's bond offering, mortgage-backed-securities, or stocks. You would only invest in those riskier investments if they promised to pay you a rate higher than the "risk-free" rate of Treasuries.
In that regard, rising Treasury rates increase the market-clearing interest rates on any borrowing which is considered riskier than the US government's likelihood of non-payment, so in short, on all other sorts of borrowing. (On fringes, this may not be the case where statutory limits apply, such as on credit-card default rates. If the risk-free rate rises high enough though, such lending might be curtailed in favor of simply moving down the risk ladder if the returns become artificially compressed.)
[deleted]
It will simply be refinanced, like all other debt with sizeable balloon payments. The underlying problem is not the so much the maturity, which can create liquidity issues, but the continued use of debt to finance government deficits.
This is not a problem as long as the RoI on spending is possible, or as long as the dollar value of the economy is expected to grow, through population growth, productivity gains, or inflation.
A government budget is not a household budget, and the same rules don't apply to it.
A government budget is not a household budget, and the same rules don't apply to it.
"If you have the right people, like, in the agencies and the various people that do the balancing ... you can cut the numbers by two pennies and three pennies and balance a budget quickly and have a stronger and better country."
-Trump
"I’m pledging to cut the deficit by half by the end of my first term in office."
-Obama
"We must balance the federal budget. We can do so without raising taxes. What we need to do is impose spending discipline."
-George W. Bush
[ Bill Clinton and Newt Gingrich actually did briefly balance the budget ]
"Balancing the budget is a little like protecting your virtue: You just have to learn to say 'no'".
-Reagan
-Trump
"I’m pledging to cut the deficit by half by the end of my first term in office."
-Obama
"We must balance the federal budget. We can do so without raising taxes. What we need to do is impose spending discipline."
-George W. Bush
[ Bill Clinton and Newt Gingrich actually did briefly balance the budget ]
"Balancing the budget is a little like protecting your virtue: You just have to learn to say 'no'".
-Reagan
Obama did cut the deficit in half. More than half. At least over the course of his entire presidency, not sure about the first term.
He did, but only after he doubled it his first couple years.
Well, again, in fairness, that was because the global economy had been run into the ground. The situation he stepped into had little to do with him.
He did vote in favor of the bank bailout (as a Senator) so the large deficit in 2009 did have a little to do with him.
Yes.
But that assumes that the global economy had been run into the ground because of the bank bailouts. This is not the case. The situation these leaders were presented with left them with few options.
The time to act with complete freedom of movement would have been before the crash. Once the crash happens, your options are severely restricted.
But that assumes that the global economy had been run into the ground because of the bank bailouts. This is not the case. The situation these leaders were presented with left them with few options.
The time to act with complete freedom of movement would have been before the crash. Once the crash happens, your options are severely restricted.
The bankers who were bailed out were the very people who ran the economy into the ground. The government could have unwound the situation without bailing them out.
But the relevant point for this discussion is: that was a one-time event and not a fair comparison with future deficits.
Deficits from later years should be compared to 2008 or 2007, or to 2009's budget without the bank bailouts.
But the relevant point for this discussion is: that was a one-time event and not a fair comparison with future deficits.
Deficits from later years should be compared to 2008 or 2007, or to 2009's budget without the bank bailouts.
That's using the abnormally large deficit in 2009 caused by the bank bailout as the starting point.
The deficits even at the end of his second term were larger than the deficit in 2007 and about the same as 2008.
https://www.thebalance.com/us-deficit-by-year-3306306
The deficits even at the end of his second term were larger than the deficit in 2007 and about the same as 2008.
https://www.thebalance.com/us-deficit-by-year-3306306
To be clear, when your predecessor is Bush the Lesser, and he has run the global economy into the ground, this is not that difficult a task to accomplish. But yes, Obama at least, moved in the right direction.
It wasn't by the end of his first term, though, right? Fair point overall, though.
He also nearly doubled the national debt though.
curious why you're being downvoted. If your message is "many presidents for the last few decades have tried and failed to balance the budget", I think you're correct.
Looking at the bigger picture, it seems like the two-party system is incentivized to NOT solve this problem. If you're a member of Tweedle-Dee in congress, and the president is a registered Tweedle-Dum, you can't help her solve the budget issue because then she'll have that jewel in her crown to win re-election.
This being a tech forum, I offer a tech solution (maybe this already exists, who knows): we need some kind of impartial data structure about every piece of legislation in congress. Some example attributes would be {tax: up/dn/na, introduced by: Rep/Dem/3p, services: add/sub/na, lobbyst dollars: $(mln), ... } but there would be many more.
The idea being that the meta data could be easily broken down to show the manipulation and dirty deeds the lawmakers do pass and block these bills. The most glaring one is when they piggyback unrelated changes into the same bill (I forget the term for this, but it's dirty). So that Senator WhatsHisName can't be blamed for voting against the ThinkOfTheChildren Act. He could point to the metadata and say "this bill would increase taxes by $1b, double our nuclear arsenal, and only give $9m to the children through one school lunch company in one district in the nation". The metadata would clearly show that some idiot put a school-lunch bill in with a nuclear weapons bill. Then the media (likely bloggers, because the major networks seldom talk about the composition of bills) can name and shame the idiot who bundled those together and make them answer for it. Just the threat of bringing these things to light should be enough to discourage it.
Another goal of the metadata, would be to shame lawmakers who vote against something for partisan-only reasons even though it clearly benefits the people. So if the president tries to balanace the budget, has congress draft even a minor change in that direction, the metadata would need to expose anyone who got in the way. Find some way to corner them and make them say "no, we don't need a balanced budget" OR, "balanced budget would be great, but I can't vote for something that Tweedle-Dum is behind". Just bring this dirty behavior to light in the most objective way possible: with unbiased metadata.
I know this data already exist in the bills themselves, but the American public don't read these bills, they need a very concise (and impartial) summary that they can cite and that they trust to not be biased. Some sort of standardization.
Looking at the bigger picture, it seems like the two-party system is incentivized to NOT solve this problem. If you're a member of Tweedle-Dee in congress, and the president is a registered Tweedle-Dum, you can't help her solve the budget issue because then she'll have that jewel in her crown to win re-election.
This being a tech forum, I offer a tech solution (maybe this already exists, who knows): we need some kind of impartial data structure about every piece of legislation in congress. Some example attributes would be {tax: up/dn/na, introduced by: Rep/Dem/3p, services: add/sub/na, lobbyst dollars: $(mln), ... } but there would be many more.
The idea being that the meta data could be easily broken down to show the manipulation and dirty deeds the lawmakers do pass and block these bills. The most glaring one is when they piggyback unrelated changes into the same bill (I forget the term for this, but it's dirty). So that Senator WhatsHisName can't be blamed for voting against the ThinkOfTheChildren Act. He could point to the metadata and say "this bill would increase taxes by $1b, double our nuclear arsenal, and only give $9m to the children through one school lunch company in one district in the nation". The metadata would clearly show that some idiot put a school-lunch bill in with a nuclear weapons bill. Then the media (likely bloggers, because the major networks seldom talk about the composition of bills) can name and shame the idiot who bundled those together and make them answer for it. Just the threat of bringing these things to light should be enough to discourage it.
Another goal of the metadata, would be to shame lawmakers who vote against something for partisan-only reasons even though it clearly benefits the people. So if the president tries to balanace the budget, has congress draft even a minor change in that direction, the metadata would need to expose anyone who got in the way. Find some way to corner them and make them say "no, we don't need a balanced budget" OR, "balanced budget would be great, but I can't vote for something that Tweedle-Dum is behind". Just bring this dirty behavior to light in the most objective way possible: with unbiased metadata.
I know this data already exist in the bills themselves, but the American public don't read these bills, they need a very concise (and impartial) summary that they can cite and that they trust to not be biased. Some sort of standardization.
This discussion is so twisted with incorrect and downright offensive to proper reasoning rhetoric. Please look up modern monetary theory. Stephanie Kelton explained modern governmental finance very well in a pod cast on Tuesday last week with Chris Hayes. Basically, if the government runs a deficit then there is a surplus somewhere in the economy that otherwise wouldn’t be. The recent trillion dollar tax cuts and lack of resulting inflation underscore their point.
The US and world economies are enumerated with USD - a fiat currency. The government says “you may pay your debts with our currency” and only they supply it. Which means all money comes from the government and only the government.
The US and world economies are enumerated with USD - a fiat currency. The government says “you may pay your debts with our currency” and only they supply it. Which means all money comes from the government and only the government.
You seem to be assuming that MMT is The Correct Theory. That's... well, at a minimum, it's not an assumption that you should expect your readers to automatically recognize as correct as soon as you state it. In fact, it might take more than one podcast to convince people.
For that matter, even Paul Krugman (a great friend of government spending freely) thinks MMT is very wrong.
For that matter, even Paul Krugman (a great friend of government spending freely) thinks MMT is very wrong.
I made a claim and supplied a reference for defense of the claim. Their claim is much closer to the true operations of government finance than the prevailing perceptions. They discuss Paul Krugman’s and Larry Summers’ criticisms in the podcast.
multiple political cycles have been dominated by demonstrably false claims and those claims have been used to refute proper understanding and progress. It’s important to refute and push back against such dismissive rhetoric.
multiple political cycles have been dominated by demonstrably false claims and those claims have been used to refute proper understanding and progress. It’s important to refute and push back against such dismissive rhetoric.
> Their claim is much closer to the true operations of government finance than the prevailing perceptions.
Um... yeah, I want to see a bit more than a podcast as evidence of that assertion.
> multiple political cycles have been dominated by demonstrably false claims and those claims have been used to refute proper understanding and progress. It’s important to refute and push back against such dismissive rhetoric.
It takes a lot more than you have supplied to push back. That's not "dismissive". That's reality.
And, "demonstrably false claims"? Absolutely, there have been a bunch, from a bunch of different sides. All the more reason we should want a bit more evidence than a podcast from last week before we believe MMT.
Um... yeah, I want to see a bit more than a podcast as evidence of that assertion.
> multiple political cycles have been dominated by demonstrably false claims and those claims have been used to refute proper understanding and progress. It’s important to refute and push back against such dismissive rhetoric.
It takes a lot more than you have supplied to push back. That's not "dismissive". That's reality.
And, "demonstrably false claims"? Absolutely, there have been a bunch, from a bunch of different sides. All the more reason we should want a bit more evidence than a podcast from last week before we believe MMT.
Link to the podcast in reference, very excellent episode: https://www.nbcnews.com/think/opinion/debunking-deficit-hyst...
Thank you for the reference and transcript!
The article says that this "represent[s] the fastest growth in the amount of maturing debt since the Financial Crisis", but that's not true. Looking at the numbers, this represents a 10.0% increase from the previous year but 2012 gave us 10.7%. 2008, 2009, and 2010 represent bigger jumps, but you can argue that the financial crisis extended to 2010 (although you can argue that it's still not really over now -- definitions are hard). Pre-crisis we had 2003 13.5%, 2002 12.5%.