America’s Bond-Heavy Debt Dilemma: Government Spending and Inflation Amid Interest Rate Increases

As the US continues to raise interest rates to combat inflation, the government is spending more money on paying interest to people who buy treasury bonds. This has led to a significant increase in assets of funds that invest in short-term securities like US government bonds, providing investors with a stable and nearly risk-free source of income. However, it also means that the government is having to spend more on paying interest on public debt, which currently stands at around 34,000 billion USD.

In March, the US Treasury paid 89 billion USD in bond interest, amounting to around 2 million USD per minute. This number is expected to increase in the near future as the government continues to spend and the US Federal Reserve hesitates to lower interest rates. According to statistics from Bloomberg, data from the St. Louis shows that the government’s interest payments could exceed $1,000 billion this year, nearly double the amount before the Fed started its rate hike in 2022.

The yield on 10-year US government bonds is currently around 4.5%, providing investors with a stable and nearly risk-free source of income. However, some analysts believe that high interest rates may be contributing to inflation by making consumption more attractive with stable and higher income from bonds. There is a debate among experts about the impact of high interest rates on inflation, with some suggesting that lowering interest rates could help cool down prices while others argue that a reduction in house prices would be necessary for inflation to significantly decrease.

In summary, rising interest rates are leading to an increase in bond investments and government spending on public debt payments while also contributing to inflation concerns among financial experts and policymakers.