US government debt exposure to inflation?

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morganist

I have gathered the research from my last post and determined the level of exposure of the US government debt to inflation. I present my figures below based on data I have linked to below.

According to Statista the current amount of government debt is $28.50 Trillion. See below.

https://www.statista.com/statistics/273294/public-debt-of-the-united-states-by-month/

According to the document below from the Treasury 7.5% of US government debt is linked to inflation.

https://home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ12021.pdf

I have estimated with $28,500,000,000,000 ($28.5 Trillion) of government debt the amount of inflation linked government debt products totals $2,137,500,000,000 ($2.137 Trillion).

If inflation rises by 1% the additional cost to the Treasury in return payments on inflation linked debt products is $21,375,000,000 ($21.375 billion) per year. Currently inflation is at 5.4%, which is 3.4% above the 2% target rate.

This is an increase in government debt return payments of $72,675,000,000 ($72.675 billion) per year if the rate of inflation is constant throughout the year. The monthly rise in inflation linked government debt products is $6,056,250,000 ($6.056 billion).

My research estimates there is a $6 billion increase in government return payments per month if the rate of inflation remains at 5.4%. A further rise of 1% in the rate of inflation would cost an additional $1,781,250,000 ($1.78 billion) per month.

I conclude the increase in return for US government debt when inflation rises by 1% is $1.78 billion per month. I would be grateful if you would evaluate my figures based on my research to verify that they are correct.
 
Can you tell me if I wanted to be altruistic and write a check to pay for all the US debt directly who would I make that check out to?
 
MarkBrown said:
Can you tell me if I wanted to be altruistic and write a check to pay for all the US debt directly who would I make that check out to?
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The US Treasury, they would then pay off all of the debts they have.
 
morganist said:
I have gathered the research from my last post and determined the level of exposure of the US government debt to inflation. I present my figures below based on data I have linked to below.

According to Statista the current amount of government debt is $28.50 Trillion. See below.

https://www.statista.com/statistics/273294/public-debt-of-the-united-states-by-month/

According to the document below from the Treasury 7.5% of US government debt is linked to inflation.

https://home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ12021.pdf

I have estimated with $28,500,000,000,000 ($28.5 Trillion) of government debt the amount of inflation linked government debt products totals $2,137,500,000,000 ($2.137 Trillion).

If inflation rises by 1% the additional cost to the Treasury in return payments on inflation linked debt products is $21,375,000,000 ($21.375 billion) per year. Currently inflation is at 5.4%, which is 3.4% above the 2% target rate.

This is an increase in government debt return payments of $72,675,000,000 ($72.675 billion) per year if the rate of inflation is constant throughout the year. The monthly rise in inflation linked government debt products is $6,056,250,000 ($6.056 billion).

My research estimates there is a $6 billion increase in government return payments per month if the rate of inflation remains at 5.4%. A further rise of 1% in the rate of inflation would cost an additional $1,781,250,000 ($1.78 billion) per month.

I conclude the increase in return for US government debt when inflation rises by 1% is $1.78 billion per month. I would be grateful if you would evaluate my figures based on my research to verify that they are correct.
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Will someone check my figures please?

If they are correct, if inflation stays at 5-6% for the next decade you are looking at adding another Trillion to the government debt. Inflation needs to be managed to stop the government debt spiralling out of control.
 
I don't think precision matters. Any back of the napkin calc will do. Unless ofc, you are looking to publish at which point you are in the wrong place to ask for help.

Why do you think adding another trillion added to a total debt of 28.50 trillion is earth shaking? Shouldn't you be more concerned of our ability to service the current debt out of our national budget?

That said, we still have the ability to print an unlimited amount to keep kicking the can down the road. So cash flow analysis or potential for default with a corporate accounting perspective has little relevance.

Below shows a line for Interest Outlays, which is small compared to Total Outlays. You can probably use the TSP G fund yield as a very good approximation of average interest % paid.
upload_2021-7-29_12-57-41.png
 
morganist said:
Will someone check my figures please?

If they are correct, if inflation stays at 5-6% for the next decade you are looking at adding another Trillion to the government debt. Inflation needs to be managed to stop the government debt spiralling out of control.
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The U.S. has no debt. It prints all the money it needs beyond what already exists. The bonds the Treasury sells into the private sector are, in effect, an interest paying form of money. When the Treasury sells a bond it is simply exchanging an interest paying form of money for a non-interest paying form. When the Treasury sells a bond, private sector bank reserves are debited in the equivalent amount and the Treasury's reserve account is credited with money previously printed and spent into the economy. Although the Treasury's selling of bonds appears to be "borrowing," in reality no money is actually borrowed. The transaction is merely an exchange of different "types" of money between the government and the private sector..

In the case of deficit spending, when the government acquires goods and services from the private sector, the Treasury overdrafts it's reserve account, and the fed covers the overdraft by "printing"; private sector reserve accounts are credited by the amount printed. By this mechanism, in effect, the private sector converts its productivity into new money (outside money). There is a net increase in the amount of private sector money (outside money).

When the government taxes the private sector, private sector reserve accounts are debited and the Treasury's reserve account is credited. The amount of money (outside money) in the private sector decreases.

In the case of non-deficit spending, when the government acquires goods and service from the private sector the private sector transfers goods and services to the government sector; the government's reserve account is debited; private sector reserve accounts are credited, and their is no net change in the amount of money (outside money) in the private sector, i.e., the transaction simply returns to the private sector money that was previously removed via taxation. .

N.B. -- "government" here means the U.S. government. Some countries do actually borrow, but not the U.S.
 
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piezoe said:
The bonds the Treasury sells into the private sector are, in effect, an interest paying form of money. When the Treasury sells a bond it is simply exchanging an interest paying form of money for a non-interest paying form. When the Treasury sells a bond, private sector bank reserves are debited in the equivalent amount and the Treasury's reserve account is credited with money previously printed and spent into the economy. Although the Treasury's selling of bonds appears to be "borrowing," in reality no money is actually borrowed.
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You forgot one important piece.

The interest-bearing form of money is acceptable as collateral just like the non-interest bearing form. Your theory of no actual borrowing falls apart no later than the 2nd-degree of separation.
 
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