November 19, 2023 by Ed Barno
We are seeing and hearing much more lately about our Nation’s deficit spending and the accumulated amount of National Debt. The deficit for the fiscal year ending September 30, 2023, is estimated to be $1.7 trillion. The current total debt outstanding is approximately $33.5 trillion, up from $5.7 trillion at the end of 2000.
Interest paid on our National Debt is a line item in each year’s annual Federal Budget. In recent years, the cost of the debt seemed manageable due to unusually low interest rates. While short-term rates are expected to decline from current levels, overall rates are not expected to decline to the abnormally low levels experienced in recent years.
The relative significance of these interest costs to our Federal Budget is forecasted to increase dramatically. Interest expense in our Budget was $476 billion for 2022. It is expected to be about $663 billion for 2023 and is projected to exceed $1 trillion by 2028. The following table illustrates this:
As more money is needed to pay for our National Debt, less money is available for other areas, most notably social programs and military spending. It remains to be seen whether or not Congress will address this growing challenge to our economy.
What is the impact on the equity and bond markets? At this point in time, the markets don’t seem to be overly concerned about this issue. We would expect concern to gradually rise if little or nothing happens to mitigate this issue. In the meantime, advisors and investors should keep an eye on this, from both a concern and an opportunity standpoint. We are.