Artis Real Estate Investment Pref Shs Series E T.AX.PR.E

RE:Public interest payment as a percentage of gdp

[Torontojay]

Torontojay wrote:

Central banks target a 2% inflation rate as part of their mandate. It's a dual part mandate to regulate the inflation rate while maximizing employment. Here is the interesting part. As of Q3 2024, the interest payment on Federal public debt is $1.116 trillion while gdp is $ 29.349 trillion. That's about 3.95% of gdp. Put another way, money creation is increasing at a 4% rate when they should be targeting a 2% rate. The problem is actually two-fold. The Biden administration is directly responsible for higher inflation and out of control spending. This spending adds more money in people's checking accounts which directly leads to higher velocity of transactions. This increases real gdp but for all the wrong reasons. There is strong evidence to support this claim. The personal savings rate for consumers adjusted for inflation is significantly below the historical or median average. Prior to covid, the personal savings rate adjusted for inflation was 5%. This is about average. Today it is at ~ 2% which is well below average. The last time it was this bad was during the GFC when the inflation rate adjusted for inflation was negative. My guess is that this will mean revert when the government begins to control their deficit spending. Until then, the can will continue to be kicked and inflation will stay above target. There is no such thing as immaculate disinflation and the tax payer has to pay the piper through inflation. 

Here is a chart of public interest payments as a percentage of gdp since they began hiking in Q1 2022. 

Q1 2022 - 2.52% 
Q2 2022 - 2.65%
Q3 2022 - 2.86%
Q4 2022 - 3.1%

Q1 2023 - 3.18%
Q2 2023 - 3.266%
Q3 2023 - 3.46%
Q4 2023 - 3.64%

Q1 2024 - 3.72%
Q2 2024 - 3.77% 
Q3 2024 - 3.8% 

This number should not be increasing. As we can see it is 128 bps above where it was when they began hiking interest rates. It is not a coincidence that gold rallied as a result of this money creation. This also supports the view that long term rates will remain elevated until the government can reduce their spending which will lower the interest payment as a percentage of gdp. Lowering Fed Funds ceteris paribus will not solve this problem. 


https://fred.stlouisfed.org/series/A091RC1Q027SBEA

https://fred.stlouisfed.org/series/GDP