In the most recent newsletter from Grant's, it was projected that net interest expense (payments less income) for Uncle Sam would be $658 billion at a rate of 5.8%. The average maturity of debt issued by the treasury is five years. This means that by 2016, the U.S. government would need to refinance the majority of its debt. If net interest costs went up by 1%, the annual interest payment goes up by $151 billion. If rates were to hit the highs seen in the early 80s, net interest payments would be $1.49 trillion. Notice that is a T for trillion.
Are we worried about the government deficits and the road the U.S. economy is headed towards? You bet we are. Economic risks are very elevated right now, and it is not the time to be aggressive. We believe that patience that will pay off in the long run.
