Ep 410 | THE REPRICING: What Happens When $40 Trillion Comes Due

Now, here's a piece that almost nobody explains.

Federal debt is not one long fixed loan.

It's bills, it's notes, it's bonds, four weeks out to 30 years, and every single one of them, when it matures, has to be paid back by borrowing the money again.

So the number that actually matters is not the interest rate on the news.

It's the average rate the Treasury is paying across the whole pile.

As of June, the average was 3.41%.

The source, the Joint Economic Committee off Treasury data.

Now, why is it so low? Because a huge share of that debt was issued in 2020 and 2021 when the government could borrow at 1.5%.

That was five years ago.

The average was 1.47%, actually.

We're still enjoying the leftovers of that cheapest money in American history, and look at what that bought Washington for a decade.

In 2010, the federal government paid $414 billion in gross interest.

The debt then was about 13.5 trillion.

By 2020, the debt had doubled to roughly 27 trillion, and the gross interest bill in 2020 was 523 billion.

Now, we doubled the national debt, and the interest bill rose about 25%.

That's called a free lunch.

Washington learned a lesson in those years, and it was the wrong lesson.

They thought that debt was cheap, but that lunch is over.

The pile is growing, and the price is rising at the same time.

For the first time in most of our adult lives, both engines are running in the same direction.

Now, look at what the market charges today.

One-year Treasury bill is about 4%, five-year about 4.5%, 10-year 4.75%, and 30-year recently was about 5.25%, the highest in 20 years.

Every point on that curve past one year is above what we're currently paying, every single one.

So as the old cheap debt matures, it gets replaced with expensive debt automatically, mechanically, whether Congress acts or, or not.

Now, how fast? Well, the average maturity of our marketable debt is about 70 months.