The US government has to sell $28 trillion of debt in the next 4 years [Podcast]

Last summer, the Federal Reserve wanted you to believe that inflation was a thing of the past.

Sure, just about every category of consumer goods had increased in price. Electricity rates had increased 5% year over year. Rent and housing costs were up 5%. Hospital care had become 6% more expensive. Food prices were up. Fuel prices were up. Auto insurance had risen by a whopping 18.6%.

Yet, bizarrely, the overall inflation average was just 2.9%. And based on that number alone, the Federal Reserve had all but declared victory against inflation.

We knew it was BS. And, after diving into the numbers, it didn’t take us very long to realize why.

It turned out that, back in the summer of 2024, used car prices were falling dramatically— down around 11% year-over-year.

You probably remember what happened: during the pandemic, supply chain snarls and factory closures caused used car prices to go through the roof. Eventually, prices peaked… and then started to fall.

By July 2024, used car prices were still on their way down… essentially returning to a more ‘normal’ level. And based on the way that the government calculates inflation, the huge drop in used car prices dragged down the overall average, making the headline inflation rate appear smaller than it really was.

We wrote about this last summer. And we predicted that the decline in used car prices would soon cease… essentially eliminating the key drag that was holding the inflation rate down.

That has now happened. And as of last month, used car prices are no longer falling… and the overall rate of inflation is once again on the rise.

This is where our discussion begins in today’s podcast, and it’s an important one. We talk about why, at this point, lingering inflation is a major challenge. And it’s becoming a more likely scenario.

There are obviously some forces within the government that are working really hard to cut spending. There are also legions of misguided (or flat-out corrupt) politicians who are fighting to prevent those budget cuts from happening.

It’s a see-saw right now and could go either way. But, at least for now, the government is still spending taxpayer money like a drunken sailor.

Last year’s budget deficit was nearly $2 trillion. They’re already on track to repeat that this year. All of that deficit spending adds to the $36+ trillion national debt.

But what makes matters even worse is that an unbelievable $28 trillion of the national debt will have to be refinanced over the next four years, according to Federal Reserve data. (We show you the Fed’s data in the podcast— it’s a chart you’ll want to see.)

The key problem, of course, is that interest rates are significantly higher today than they were several years ago. So when the Treasury Department refinances that $28 trillion in debt, it will be at a MUCH higher rate.

Think about it— if most of that debt was sold at a 2% rate, but now they have to refinance at 5%, then that’s an extra 3% interest to pay on $28 trillion— or $840 billion per year in additional interest.

Remember that the government’s interest bill is already $1.1 trillion per year. So in four years it could easily eclipse $2 trillion per year. Again, this is just the amount of interest.

It’s also pretty clear that a lot of foreign governments and central banks— who own a huge chunk of that $28 trillion which needs to be refinanced— are looking to diversify away from the dollar.

It’s already happening; obviously there are the loudmouthed BRICS countries that have started trading with one another in their own currencies, and thus begun reducing their dollar holdings. But even supposed ally nations in Europe are starting to trade their US dollar reserves for gold.

This is setting up a precarious situation… because if foreign governments and central banks continue reducing their dollar exposure, then who is going to buy up all that $28 trillion worth of US government debt that needs to be refinanced?

Well, the only remaining lender is the Federal Reserve. And as we’ve discussed before, the Fed buys government bonds by printing money… which ultimately causes inflation.

During the pandemic, the Fed printed $5 trillion and we got 9% inflation. Over the next four years the Fed might have to print a good chunk of that $28 trillion just to help refinance US government debt. So what will inflation be? No one knows. But probably not their magical 2% target.

The only way out is to slash government spending. And certainly there is a lot of low hanging fruit for DOGE to cut, which could get the deficit (and therefore inflation) under control.

But this is far from a risk-free proposition. And that’s why it still makes so much sense to have a Plan B.

We discuss all this, and more, in today’s podcast— and we hope you take time to listen in here.

https://youtu.be/OKlpqLzY5yo?si=TF3Qp1YD1bCyc_Zr

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