The outstanding debt of the United States reached $21.4 trillion as of last Thursday 8/16/18, a record amount. The debt, up $914 billion since the end of 2017, consists of $15.7 trillion of “debt held by the public” (i.e., investors, both domestic and foreign) and $5.7 trillion of “intergovernmental” debt (i.e., loans from other government departments). The average interest rate paid by the government on its interest-bearing debt (i.e., the $15.7 trillion owed to investors) was 2.457% as of 7/31/18, 1.9 percentage points lower than the cost of debt a decade earlier in 2008. The concern is what happens if interest rates retrace their steps back above 4%. Every 1 percentage point increase in the cost of debt on our nation’s $15.7 trillion of publicly held debt is equal to $157 billion of annual interest expense (source: Treasury Department).
Foreign investors have not backed off from their love of US Treasuries. From $1 trillion of holdings in 2000, foreign buyers (led by China and Japan) have increased their position of treasuries to more than $6.2 trillion today (source: Treasury Department).
At the low point for mortgage interest rates (November 2012), homebuyers could borrow $100,000 on a 30-year fixed mortgage at 3.31%, requiring a monthly “principal and interest” payment of just $439. Borrowing that same $100,000 today at 4.53% (the current national average) requires a monthly “principal and interest” payment of $508. The goal of every homeowner: to join the 38% of American homeowners that currently own their primary residence free-and-clear of any debt (source: Census Bureau).
Notable Numbers for the Week:
INCREASING COSTS – Inflation (using the “consumer price index”) advanced +2.95% on a year-over-year basis ending 7/31/18, inflation’s largest annual increase since December 2011. The consumer price index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies (source: Department of Labor).
WHERE THEIR ECONOMY CAN GROW - Personal consumption by American consumers represents 70% of the US economy. Personal consumption by Chinese consumers represents just 39% of the Chinese economy (source: Business Week).
GREEN ACRES - The average “farm real estate value” is $3,140 an acre in 2018, including land and buildings, an increase of +3.8% per year over the last 10 years (source: Department of Agriculture).
SOARING COLLEGE COSTS - 44 million Americans owe $1.41 trillion in student loan debt as of 6/30/18, a +139% increase (up $820 billion) in just the last 10 years (source: Federal Reserve Bank of New York).
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