A few days ago, Jerome Powell acknowledged that despite implementing fourteen rate hikes, inflation persists. Recent treasury data provides an explanation. Following a brief respite during the debt ceiling dispute, the federal government has resumed spending at an excessive rate. My colleague RH Kynd shared a series of threads highlighting countries careening toward a fiscal crisis. Unless they deliberately crash their economies, inflation will continue for years to come.
To begin, the new treasury data reveals that interest on the debt skyrocketed to $61 billion in May, amounting to an annualized $730 billion. This translates to nearly $500 per month per household solely for federal debt service. In fact, we are now paying more in interest than what is allocated for veterans’ education and transportation combined. The interest on all debts accounts for over a quarter of the federal deficit. Consequently, we are borrowing even more money just to cover the interest on our existing loans, and the situation is deteriorating rapidly.
Thus far in 2023, the deficit is 2.7 times higher than it was at the same time last year, and it will continue to worsen as we replace old, low-interest-rate debts with much higher-interest-rate debts. It’s worth noting that a year ago, treasuries yielded 2.9%, meaning we paid $2.90 in interest on a $100 loan. Currently, those rates have risen to 5.3%, which doubles the interest to $5.30. Clearly, this is a significant increase.
Unfortunately, for everyday Americans, it is not as easy as simply printing more money. The inflationist Modern Monetary Theory (MMT) adherents believe in an endless cycle of printing money, regardless of tomorrow’s consequences. However, regular Americans lack the luxury of having money printers in their basements. As a result, the influx of new dollars into circulation leads to inflation, which erodes their wages, pensions, and life savings. Meanwhile, the cost of essential purchases, such as phones, credit applications, and adjustable mortgages, continues to push individuals further into debt.
Since President Biden assumed office, the average American family now earns $5,600 less annually, which amounts to $500 less per month. It’s crucial to note that this calculation only considers official inflation. If the true inflation rate is higher, the situation becomes much direr. Those who attempted to safeguard themselves from inflation by investing in real estate faced the harsh reality that monthly mortgage payments have doubled since Biden took office. This adds an extra $20,120 per year or $350,000 over the course of a typical 30-year mortgage. Consequently, it becomes increasingly challenging for young families to enter the housing market and establish themselves.
Furthermore, this assessment doesn’t even include the additional $11 trillion in debt that Americans have accumulated since Joe Biden assumed office. This debt arises not only from the federal government but also from credit cards and the growing number of people financing their groceries. On average, this new debt amounts to $85,000 per family. In other words, for every $1 raise that Americans received over the past two years, which Biden frequently boasts about, they effectively lost $2.50 in purchasing power and accumulated nearly $15 in additional debt.
Our economy is swiftly transforming into a piggy bank to fund federal deficits, leaving working families to fall off the treadmill. Both political parties appear content with perpetuating this cycle, adding trillions upon trillions of dollars until it inevitably collapses. We will be monitoring the situation closely. Until next time.
