Chart of the Month (April 2023)

21 April 2023
Monthly Charts

Chart Description

The attached chart shows the debt maturity schedule for the United States (in billions of USD).
Per the graph and chart provided, the United States has over $9.1 trillion of debt coming due before the end of 2024.
This does not account for any additional borrowing required to finance ongoing programs.
Six months through the 2023 FY (March), the US Govt ran a $1.1 trillion-dollar deficit.
This deficit is expected to grow to over $1.5 trillion by fiscal year-end (Sept 2023).
The FY 2024 budget projects a deficit of $1.8 trillion dollars.
All estimates assume growing income tax receipts.
The implication from the estimates is that we will not experience a recession as tax receipts typically fall by 20% or more during a recession.

Our take

One of the reoccurring themes that we hear in the financial news today is that the Federal Reserve is committed to fighting inflation. We are told that they will keep interest rates “higher for longer” to accomplish that objective. Similar to how we felt in early 2021, when the Federal Reserve and Treasury officials continually told us that inflation was transitory, we have our doubts. Per the monthly Treasury Statement for the month of March, the annual interest expense on government debt is expected to reach $900 billion by fiscal year-end, well on its way to $1 trillion. $900 billion of interest expense would make it the third largest line item in the federal budget, ahead of defense spending ($771 billion) and behind only Social Security ($1.4 trillion) and health and human services ($1.7 trillion).
It is important to remember that a significant portion of the $9.1 trillion of debt that matures in the next two years was issued in 2020 and 2021 when short-term funding rates were well below 0.25% and long-term rates were hovering around 1.5%. At current rates, the Treasury will be forced to refinance debt with near zero interest rates with new borrowing at rates between 4-5%. If rates are truly held “higher for longer” the interest expense will soon balloon well beyond $1 trillion in the coming years and move closer to overtaking Social Security spending as the 2nd largest budget expense item. It is almost as if the federal government has forgotten the lessons of 2008 and boxed themselves into an adjustable-rate mortgage in an environment with interest rates exploding higher. Unlike the unsuspecting home buyers in the Great Financial Crisis, the Treasury can persuade their friends at the Federal Reserve to push interest rates lower again. However, you can’t have it both ways. The Fed can’t fight inflation and manipulate interest rates lower at the same time. They will have to choose. Nobody knows for sure what will happen, but with the budgetary storm clouds brewing, when push comes to shove, we have a hunch which way things will break.

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