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We don’t even want to know what debt-to-GDP looks like in the next recession when it’ll get hit by a double-whammy.
By Wolf Richter for WOLF STREET.
The US national debt – the total amount of Treasury securities – rose to $35.00 trillion, according to the Treasury Department on Friday (rounded to the nearest billion: $34.998 trillion). Since the beginning of the year, in less than seven months, the debt has jumped by $1.0 trillion. In the three-and-a-half years since January 2020, the debt has ballooned by 50%.
The economy has been growing rapidly since the trough in 2020. Yet trillions in new debt were whizzing by so fast they were hard to see, like, “Oh wow, there went another one I think.” We don’t even want to know what this situation will look like during the next recession. But we know one thing for sure, this is nuts:
The size of the economy and the debt.
The chart above is somewhat tongue-in-cheek because the debt in a vacuum is kind of meaningless. It needs context. And the context is the size of the economy.
The debt is measured in “current dollars,” not adjusted for inflation. So we compare it to the size of the economy (GDP) in “current dollars,” not adjusted for inflation. Apples to apples.
If current-dollar GDP grows faster than the debt, the burden of the debt on the economy diminishes. That’s the hoped-for but for the US overall elusive scenario of “growing your way out of the debt.”
During recessions, the burden of the debt spikes because the debt increases and GDP declines – a double-whammy for the debt-to-GDP ratio.
“Current-dollar” GDP in Q2 rose by 5.2% annualized to $28.6 trillion, according to the Bureau of Economic Analysis on Thursday (adjusted for inflation, “real” GDP rose 2.8%).
Since January 2020, current-dollar GDP grew by 31%. That was a lot, see the steep curve in the chart above. Inflation had a lot to do with it. Stimulus spending in 2020 and 2021 and then deficit spending over the past two years also had a lot to do with it.
Over the same period, the debt grew by 50%. As current-dollar GDP grew 31% and the current-dollar debt grew by 50%, the burden ballooned.
The burden is expressed as the debt-to-GDP ratio, which soared from an already high 106% at the end of 2019 to 133% at the top of the spike in Q2 2020 when GDP collapsed while the debt exploded as the government was raising funds for the stimulus measures. Then an economic bounce-back brought the burden of the debt off its spike but never back down to prepandemic levels. Instead, it bottomed out at 117% in Q1 2023 and then started to rise again.
In Q2, current-dollar GDP grew faster than the debt. Quarterly estimated taxes, capital gains taxes on the everything-rally in 2023, and underpaid income taxes (including for interest income, which had ballooned) for 2023 were due by April 15. Tax revenues flooded into the Treasury in huge amounts, and the debt didn’t move much for a while around that time.
So with current-dollar GDP growing faster than the debt in Q2, the debt-to-GDP ratio dipped a bit to a still huge 121.7%.
The burden of the interest payments. The relevant metric is interest payments as a percentage of tax receipts, that are used to pay for the interest. The BEA hasn’t yet released the Q2 figures for the relevant measure of tax receipts, but here is Q1 (our detailed discussion), where the ratio dipped due to the surge in tax receipts in Q1. In Q2, it will dip further as tax receipts surged through April 15. Our Q2 update will be out in about a month, so stay tuned:
T-bills’ share of Treasury securities held by the public.
There are currently $5.76 trillion in Treasury bills outstanding. T-bills have terms of one year or less. They’re a very liquid form of interest-earning risk-free cash for holders.
The government has been issuing huge amounts of T-bills to take upward pressure off longer-term yields. Starting in the spring last year, the T-bills’ share of all marketable treasury securities outstanding surged from around 16% in April 2023 (when $3.94 trillion in T-bills were outstanding), to 22.5% by March 2024, (when $6.06 trillion in T-bills were outstanding).
In recent months, thanks largely due to the flood of tax receipts filling the coffers with cash, the Treasury Department has trimmed back new T-bill issuance, and the amount of T-bills outstanding has now dipped to $5.76 trillion.
Of the total $35.0 trillion in Treasury securities outstanding, a $7.16-trillion portion is held by government entities, such as government pensions funds, the Social Security Trust Fund, etc. This portion of the debt “held internally” is not traded in the markets.
The remaining $27.84 trillion is “held by the public.” The public includes international investors and central banks, which hold a record $8.1 trillion; plus the Fed, which holds $4.4 trillion after QT shed 41% of the pile it had added during its pandemic QE; US banks; money-market funds; bond funds; insurers; other institutional investors; and individuals.
T-bills now account for 20.7% of the Treasury securities held by the public, down from 22.5% in March.
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The post US National Debt Hits $35 Trillion. Debt-to-GDP Ratio, at Scary Levels, Dips a Tad. And T-Bills’ Share of this Debt appeared first on Energy News Beat.
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