The New CS Board

[jumanji0881]

It's all about the debt -

My Comment: I'm expecting the national debt to reach $40Trillion by 2026. And I think Biden is dreaming if he thinks he is reducing this year's fiscal deficit by $1.5Trillion.

Stockman: The Fed Is Not Fixing The Problem : https://www.zerohedge.com/markets/stockman-fed-not-fixing-problem

Excerpts:
At the same time, Federal borrowing requirements will remain massive because the structural deficit has become deeply embedded in policy. Even after the $3.1 trillion and $2.8 trillion back-to-back deficits in FY2020-2021, the red ink is barely abating as Covid spending rolls off.

In fact, the US Treasury is in a virulent catch-22 when it comes to impending borrowing requirements. That’s because debt service costs will be far higher as interest rates rise, while revenue growth will slowly sharply from current levels as the Fed’s pivot to aggressive tightening grinds the economy to a halt and then into recession.

For instance, OMB’s current net interest expense projection for FY 2022 totals $415 billion, which represents an implied yield of just 1.75% on the average of $23.9 trillion publicly-held debt outstanding during the the fiscal year. But as the Treasury debt rolls over—especially T-bills and 2-year notes—the average carry cost of the public debt will rise sharply.

By FY 2024 that rise could easily be 200 basis points, meaning a weighted average debt service cost of 3.75% on $26 trillion of projected publicly-held debt. In turn, that implies $975 billion of annual net interest expense or more than double the current fiscal year estimate.

Likewise, OMB projects revenue growth of 4.6% next year (FY 2023) and an outlay decline of -1.0%. But we’ll take the unders on both—especially the risible notion that spending will actually decline during the run-up to the most fraught presidential election of modern times.

In short, Uncle Sam is likely to be hitting the bond pits with at least $2 trillion per year in new debt paper in the period ahead, even as the Fed dumps in another $1.2 trillion at annualized rates, as it ramps down its balance sheet per today’s announcement.

What that adds up to is the return of the bond vigilantes—a revival of the old “crowding-out” syndrome as the bond pits struggle to fund $3.2 trillion of government debt paper per annum with no helping hand from the Fed’s printing press. In that context, of course, it will be business and home mortgage borrowers who will get the short-end of the stick