Federal Debt Service

Fiscal Crisis Indicators

1) 1 yr T-bill above inflation rate and 1%+ above Fed rate

2) Japanese GB yields rising [Aug '08 10 year 1.42%]

3) 3 mo Tbill - Fed Rate above 100 bps and rising 10 year treasuries [Aug’08 10yr 3.9%]

4) Gov't DSRs rising 10% per year

5) After some time at 0%, Tbill yields rise to reprice risk of gov’t bonds not due to inflation or stock market

6) Real GDP declining

7) Gov’t DSR above 30%, Canada broke at 35%

8) Gov’t Debt to GDP ratio above 120% or unemployment above 10%

9) Gold rising as ability to service debt is questioned, oil may be falling due to negative GDP

10) Available Savings & Stock Market Cap insufficient to fund deficit ( Japan had high savings, long period of adjustment and external surplus US will be lacking)

Fiscal policy is at best a mitigating or cushioning factor. Monetary policy is the preferred method. Unfortunately, monetary policy has failed at this time.

As bailouts and deficit spending increases, there comes a point where the federal debt service is so high that they have no choice but to print money ie. hyperinflation.  Currently, US is not near this point but I believe in the next 10 years it may come to be.

US is farther from hyperinflation versus Japan (1.74%) as currently US average debt is financed at 4.8%. As the mild deflation takes hold in US in the next few years, the 4.8% finance rate will fall along with government bond yields. In addition, the US starts with a lower debt service ratio 8.9% (US) vs 16.5% (Japan). Arguably, Japan is still some time from a hyperinflation.

Japan vs US:

Japan interest payments to debt ratio: 9.5T yen/ 547T yen = 1.74% (also average interest rate on debt - in $ approx. 95 $B / 5.47 $T )

National debt service to debt : 21T / 547T = 3.8% (one theory I have is that they are buying back higher interest loans and issuing new low interest gov't bonds.)

Also.... interest payments to tax revenue: 9.5 T / 57.5 T = 16.5% (peaked at 22% in 1999)

US interest payments to debt: 240 $B / 5000 $B = 4.8% (This will come down as current T bills are financed at 2%.  In the future a 0% fed policy will improve this further.)

Interest payments to tax revenue:  240 $B / 2700$B  = 8.9%

Total Federal Taxes Collected Annualized...Q1'08

Federal Interest Payments...End of 2007

Federal debt service is not bad compared to Japan.  It's currently about 8.9%.  Japan is at 16.5%.

Federal Debt...Q1'08

There is other federal debt but it doesn't pay interest as it is owed to other parts of federal government social security, etc.  Programs here will have benefits cut and premiums increased to cover.

All government here...

All Government Receipts Growth...Q1'08

This is just state tax receipts part of the above chart.

State Tax Collections Growth...End of 2007

See other countries… US at 61% of GDP far from Japan.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html