This chart shows the total interest expense on the Debt Outstanding for each fiscal year (October through September) per person in the U.S. and adjusted by the CPI.
There is good news and bad news here in my opinion.
The good news is that the chart isn't all that ugly. Things look pretty good. This chart also shows that things might (extra emphasis on "might") hold together a long time.
The bad news is it is just one more chart showing the tailwinds we've been getting from 20+ years of interest rate declines. Debt has been going up when adjusted for inflation. We know that. It has been going up per capita. We know that too. The only thing keeping this chart seemingly healthy is the drop in interest rates. If inflation and interest rates ever do go back up we're going to be in a world of hurt. When might that happen? No idea. With $90+ oil maybe it is happening right now and we just don't know it yet. (Cheap oil was yet another tailwind we seem no longer capable of counting on.)
See Also:
National Debt Per Capita (Musical Tribute)
Source Data:
Treasury Direct: Interest Expense on the Debt Outstanding
St. Louis Fed: Consumer Price Index For All Urban Consumers: All Items
St. Louis Fed: Population: Mid-Month
Why CPI adjust? People aren't paid in CPIs. I don't file my 1040s using adjusted dollars. Dollar debt is dollar debt.
ReplyDeleteThere is the other concern; we've shifted to ever shorter term instruments. Good in a declining rate environment, not good soon.
Why CPI adjust?
ReplyDeleteI'm simply showing that the interest expense is holding steady when adjusted for inflation. There's nothing alarming about the payments any more than there would be anything alarming about the price of green beans rising at the rate of inflation.
Dollar debt is dollar debt.
Yes, that is true. This isn't a chart of dollar debt though. It is a chart of debt interest expense. The alarming debt chart is in my "See Also" link.
Good in a declining rate environment, not good soon.
That's my point in the bad news section of this post. The debt we've built up is manageable as long as interest rates continue to fall (or possibly even stay flat). Like you, I am very concerned that we as a society seem to forget interest rates might someday rise (also true of homebuyers who embraced ARMs).
What is one thing that might cause interest rates to rise?
Debt! There's a reason subprime borrowers are forced to pay higher interest rates. At some point people start wondering if they can pay it back.
Hey, just my 2 cents (adjusted for inflation).