In fiscal year 2020, at the height of covid stimulus mania, Congress managed to spend nearly twice what the federal government raised in taxes.
Yet in 2021, with Treasury debt piled sky high and spilling over $30 trillion, Congress was able to service this gargantuan obligation with interest payments of less than $400 billion. The total interest expense of $392 billion for the year represented only about 6 percent of the roughly $6.8 trillion in federal outlays.
How is this possible? In short: very low interest rates. In fact, the average weighted rate across all outstanding Treasury debt in 2021 was well below 2 percent. As the chart below shows, even dramatically rising federal debt in recent years did not much hike Congress’s debt service burden.
This is an exceedingly happy arrangement for Congress. Debt is always more popular than taxes for the same reason starting a diet tomorrow is more popular than starting today. Austerity does not sell when it comes to retail politics; spending trillions today while merely adding to what seems like a nebulous, faraway debt definitely does. And American lawmakers are uniquely fortunate in this regard. As French finance minister Valéry Giscard d’Estaing infamously announced in the 1960s, the Bretton Woods monetary system created “America’s exorbitant privilege.” He understood how the US dollar’s status as the world’s reserve currency would allow America to effectively export inflation to its hapless trading partners while maintaining cheap imports at home. But he may not have fully grasped the political privilege which would accrue to Congress.
Is this privilege sustainable? That may well be the most important political question of the twenty-first century. As Nick Giambruno explains, our forty-year experiment in relentlessly lower interest rates may soon end regardless of what the Fed does. Markets and geopolitics are powerful forces. Inflation, huge projected deficits, economic sanctions on Russia, oil disruptions, and a diminished appetite around the world for propping up Uncle Sam forever all exert upward pressure on Treasury rates. The Fed proved it can and will serve as market maker and backstop for US Treasurys, with its sordid QE (quantitative easing) bond purchases after the Great Recession and its deranged response to covid. But it cannot force investors, even crony institutional investors, to buy American bond debt at rates well below inflation forever. This is not hypothetical; Giambruno notes how certain Treasury yields quietly rose five time just since the absolute lows of 2020.
If Treasury rates continue to rise, and rise precipitously, the effects on congressional budgeting will be immediate and severe. Even if we laughably assume total federal debt remains static at around $23.8 trillion (the publicly held portion of the $30 trillion), interest rates of merely 2 or 3 percent will cause interest expense to rise considerably. Average weighted rates of only 5 percent would cost taxpayers more than $1 trillion every year. Historically, average rates of 7 percent swell that number to more than $1.5 trillion. Rates of 10 percent—hardly unthinkable, given the Paul Volcker era of the late seventies and early eighties—would cause debt service to explode to over $2.3 trillion.
Again, even 5 percent average rates would cause debt service to become the single biggest annual expenditure for Congress—ahead of Social Security ($1.2 trillion), Medicare ($826 billion), and the Department of Defense ($704 billion). The starting point for budget makers every year would be an interest expense totaling nearly half of realistic tax revenue. And keep in mind that these figures are for the existing federal debt, exclusive of the vast future deficits that are almost dead certain to happen. Seniors like entitlements, and the percentage of Americans over sixty-five is set to double by 2050. Republicans and Democrats like war, busy as they are installing more US troops in Poland and envisioning new aircraft carriers to patrol the Mediterranean (yes) and the South China Sea. What happens when the interest-bearing debt is $40 or $50 or $60 trillion?
At some point, given the sheer and utter profligacy of Congress, will the world demand junk bond rates to loan America another dime? Everyone knows the US will never pay its debts except nominally through inflation; everyone knows off–balance sheet entitlement promises cannot be kept in any meaningful way. Spendthrifts get cut off eventually, even those with powerful militaries and hegemonic currencies. This may not happen soon, if for no other reason than that the rest of the world holds trillions of US dollars too. But if American exceptionalism goes the way of the British Empire, this will be the reason why.
During the incontinent George W. Bush administration, Dick Cheney infamously chided Treasury secretary Paul O’Neill with the assertion “Reagan proved deficits don’t matter.” We see the same deluded thinking today among proponents of modern monetary theory, the idea that sovereign governments can command resources at will. This mentality pervades Congress, which in turn is rewarded by voters who want wars and welfare today without thought to future generations. They choose to believe the Cheneys and the MMTers, who tell them deficits and debt are essentially costless.
But debt and deficits do matter. We are about to find out how much they matter. The good news, and it is very good news, is that Americans soon may enjoy the benefits of compounding interest on savings (our grandparents can explain this to us). Civilization begins and ends with capital accumulation, the very thing politics and central banks attack with impunity. It is beyond time to reward savers and punish Congress.
About the Author
Jeff Deist is president of the Mises Institute. He previously worked as chief of staff to Congressman Ron Paul, and as an attorney for private equity clients. Contact: email; Twitter.
Image by fedrik via Flickr, CC BY 2.0. Article cross-posted from Mises.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
