by Jon N. Hall 10/4/16
In his 2008 campaign for president, candidate Obama said that the debt run up by Pres. Bush was “irresponsible” and “unpatriotic” and that Bush ran up the debt all “by his lonesome” (short video). Despite presiding over far more debt in his first term than Bush did in two, Pres. Obama was re-elected by young folks. It would seem that debt doesn’t really register with millennials. Although millennials may not be interested in debt, debt is interested in them.
On Oct. 1, 2016 the federal government will begin its next fiscal year, FY 2017. Fiscal 2017 will mark ten years since the last budget produced by a Republican Congress before the Democrats took over Congress in Jan. 2007. Enjoy it while it lasts, kids, because a year from now we’ll start rolling over the Democrat debt.
The ten-year anniversary of fiscal 2007 is significant because most of the federal debt is in instruments that have terms of ten years or shorter. The deficit for fiscal 2007 was -$160B. When Nancy Pelosi took over, the deficit exploded: in fiscal 2008 the deficit hit -$458B, a record, and in fiscal 2009 the deficit hit -$1,412B, another record. And then came three more trillion-dollar deficits. So, fiscal 2017 should be the lull before the storm, and a quarter of it will have elapsed before the swearing in of the next Congress. Enjoy.
People get hung up on the $19T “official” national debt; the figure is continually splashed all over the TV (especially if they’re selling gold). But what millennials need to be looking at harder is the “hard” debt, the debt held by the public. Let’s look at “Note 11. Federal Debt Securities Held by the Public and Accrued Interest” of the “2015 Financial Report of the United States Government” and see what the public debt consisted of on Sept. 30, 2015, the last day of fiscal 2015.
Marketable U.S. securities held by the public consist of Treasury bills, notes, bonds, treasury inflation-protected securities (TIPS), and floating rate notes (FRN). One year ago, on Sept.30, 2015, the grand total of these marketable U.S. securities came to $12,831.9 billion, or about $12.8T.
Of that $12.8+ trillion in marketable debt, only $1,688B is in Treasury Bonds, which have terms of 30 years. The more concerning entry is for Treasury Notes, whose longest term is 10 years. As of Sept. 30 last year, T-notes comprised $8,366B, or 65.2 percent of the marketable debt.
If these data don’t disturb you, perhaps a chart will do the trick. On page 21 of the GAO’s financial audit “Bureau of the Fiscal Service’s Fiscal Years 2015 and 2014 Schedules of Federal Debt,” we come to the “Debt Held by the Public” section where we see this chart:
This angry chart shows the nearness of our fiscal dilemma, and if it concerns you, read the “Debt Held by the Public” section of the GAO’s financial audit, which begins on page 21 of the PDF. In the second paragraph you’ll read this: “Of the marketable securities currently held by the public as of September 30, 2015, $7,408 billion, or 58 percent, will mature within the next four years.”
For contrast, if we go back to the GAO’s audit for fiscal 2007, and venture to the same “Debt Held by the Public” section (page 16), we read: “Of the marketable securities currently held by the public as of September 30, 2007, $2,838 billion or 64 percent will mature within the next 4 years.”
So, in eight years the amount of money needed to pay back Treasury securities over the next-four-year spans increased from $2.8T to $7.4T. But that’s not the worst of it. The four-year projection for Sept. 30, 2018, two years from now, will include the four trillion-dollar deficits that Nancy Pelosi is so proud of. My hunch is that the four-year projection in 2018 could be about $9T.
How is Treasury going to pay back those trillions in Obama era U.S. securities without causing inflation? If all the Treasury did was to pay back the maturing securities, it would be pumping trillions of new dollars into the economy. If that proved too inflationary, Treasury could roll over the maturing securities or sell new securities, sucking the money back out of the economy. But that would also be inflationary as it would jack up interest rates. Not only would the higher rates for U.S. securities increase the cost of debt service for the taxpayer, but those higher rates for T-notes and such would trickle down throughout the economy. Inflation seems inescapable and it should start ramping up one year from now, when the Democrat debt, their 10-year T-notes, starts coming due.
Millennials are responsible for the grim decade they face, as they provided the winning margins for Obama, Pelosi, & Co. Millennials have grown up with the Fed’s ZIRP, zero interest rate policy; they’ll be shocked when they finally face normal interest rates. Of all voting groups, it is young people, millennials, who should be demanding balanced budgets the most, for they are the ones who will be most affected by Obama’s “legacy” of debt. (Debt is interested in you, my fine-feathered young friends.)
The Obama Era is not just a lost decade. His legacy of irresponsible debt threatens the next decade and beyond. America cannot afford four more years of Obama, nor can she afford another Democrat Congress.
Jon N. Hall is a programmer/analyst from Kansas City.