RESEARCH CONTENT
Charts and tables showing the increasing US government debt interest burden, and how it is highly likely to worsen future government finances, even if rates decline to current forward rates and government receipts continue to grow at an average pace.
This is simply due to the increasing debt stock and the refinancing of significant amounts of low coupon debt into much higher coupons.
Some different scenarios are presented, which are not extreme in nature. Interest rates are going to have to fall much further than what is currently being priced into markets if the government wants to maintain the same level of social services to its citizens and keep other expenditures unchanged (e.g. defense spending).
Clearly if the future deviates from the current status quo, and there is a recession with a wider deficit, then the risk is of an even higher interest rate burden, unless interest rates fall meaningfully lower than forward rates.
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