Horowitz: Treasury set to borrow unfathomable $3.2 trillion by the end of the year

This week, Fitch downgraded the U.S. government’s long-term credit rating from AAA to AA+, despite the protestations from Treasury Secretary Janet Yellen. In reality, our long-term credit shouldn’t even be worth a D rating.

There’s a reason why Jerome Powell not only raised interest rates but indicated that rates will be elevated for quite a while and possibly go up again later this year. Despite the fake data from the White House suggesting inflation has been defeated, Powell knows exactly what is coming. His predecessor, Janet Yellen, who is now secretary of the treasury, plans to issue a biblical level of debt this year, which will induce endless inflation. Unfortunately for Powell, no number of interest rate hikes will be able to curb the inflation tidal wave rising from the debt tsunami. High interest rates will just further depress the economy and government revenue, thereby making the debt even more expensive to service. We are in uncharted waters.

COVID might be over, but our government is now facing the long-term effects of its disastrous policies, as federal deficits will begin rivaling the era of the lockdown itself. On Monday, the Treasury Department announced its plan to borrow $1.007 trillion in privately held net marketable debt this quarter and an additional $852 billion during the fourth quarter. In other words, it will issue an additional $1.859 trillion in debt in just a five-month period! That is the most in history aside from the lockdown itself in Q2 of 2020.

This announcement comes after Yellen already issued more than $1.3 trillion during the first half of 2023. So in total, we could be on pace for nearly $3.2 trillion in debt issuance in just one year, roughly double the rate of last year! However, given that Yellen’s new Q3 borrowing estimate is already $274 billion higher than her initial projection in May, don’t be surprised if the numbers go even higher, especially as interest rates increase.

Interest rates are now higher than they have been at any time since 2001. Except, in 2001, we had $6 trillion in debt and small annual surpluses rather than deficits. Now we have $32.7 trillion in debt and mega-trillion-dollar deficits. This one chart of interest on the debt from the Federal Reserve epitomizes the catch-22 the COVID fascism economy has now placed upon us.

Because of the COVID spending, we are caught in a vicious cycle of biblical levels of debt, skyrocketing interest rates, and servicing costs on the one hand and hyper-inflation, decreased economic output, and depleted government revenue on the other hand – all reinforcing each other in a degenerative cycle.

Interest on the debt is now at an annualized pace of $969 billion, much more than military spending. With Yellen’s new announcement, it will easily surpass $1 trillion by the end of the year. There is no way higher interest rates can curb the inflation this will induce, yet our government believes it is the key to keeping inflation in check. Ironically, this will create even more inflation, because it will engender higher deficits and debt servicing, while simultaneously depressing economic investment/output and lock up the credit market.

Here's what we know about the economy right now after the increased interest rates of the past year:

• U.S. factory output has dropped for four months in a row.
• The PMI index (ISM Purchasing Managers Index) has dropped from 64 down to 46, which is a sign of contraction that we have not seen this low – with the exception of the lockdowns – since the 2008 Great Recession.
• Retail sales for June rose an anemic 0.2%, which, adjusted for inflation, actually declined 2.5% over the past year.
• The credit market is completely locked up, with new credit for individuals and businesses grinding to a halt. Also, interest on credit cards is now surging to 22%.
• There have been 340 corporate bankruptcies in the first six months of 2023, more than during COVID in 2020.

Keep in mind that the economy and our federal budget are in dire straits despite virtually full employment in this country (if you believe the Labor Department’s unemployment numbers). Spending is at record highs, and revenues are already down 9.2% this past month. Now imagine what happens when the unemployment rate ticks up.

In other words, absent massive spending cuts, the debt is going to create intractable inflation and endless pressure on interest rates, which will constantly work against the economy and exacerbate deficits.

This is why the GOP’s debt ceiling deal was an utter joke. It was not even a pebble in the road against the oncoming debt tsunami. Now, after Republicans squandered their first leverage point, the late September budget fight is the last chance to change this irrevocable trajectory. Unfortunately, as they vacation for a full six weeks, they are not exactly giving the American people a sense of urgency to deal with this debt.