Uncle Sam's Borrowing Needs

Daily Data: A rapacious borrower meets a timorous lender

Uncle Sam is still planning to hog all the liquidity, and I still don’t get how it’s supposed to work.

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Daily Data

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Uncle Sam’s Borrowing Needs (reprise)

Random Walk continues to wonder how Uncle Sam is going to get all the money it needs (and what the consequences might be if it does).

Consider, again, that the amount of refinancing Uncle Sam needs continues to grow, with more than $8T of debt maturing in the next 12 months:

As per Mr. Costa, that’s:

• 1/3rd of what’s outstanding,

• 3.5X more than the net-new issuance this year, and

• doesn’t account for the ~$2T of net-new issuance necessary to cover next year’s widening deficit.

That’s a whole lot of borrowing at precisely the time when central banks, especially ours, have said “borrowing money is going to be hard and expensive.”

If you need liquidity, you’re going to have to find it from someone other than a central bank:

Banks have shrunk their share of debt to 35% of global GDP, which is substantially lower than peak-pandemania, but still higher than pre-pandemic.¹

So it’s investors who are going to be responsible for funding this (in theory).

And how do you get money from investors?

Well, if you’re a private company, you’re deadset on improving your bottom line, increasing profitability, and reducing your borrowing needs. Otherwise, investors won’t touch you with a 10ft poll.

That’s how you survive.

So how does Uncle Sam survive?

Take a look at this fantastic viz from

Aziz Sunderji

and remind me again which part of Uncle Sam’s bottom line is going to get better:²

The deficit grows, so borrowing grows, so the interest expense grows, so the deficit grows, so the borrowing grows, and around and around we go.

Borrowing costs as a share of revenue get ever-higher, which only drives borrowing costs higher.

• Compare 2015:

  

• To 2023:

  

Up and to the right is not the direction we want to be moving in.

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I don’t get it.

How does this end without either a central bank intervention (so long “War on Inflation”) or just Uncle Sam eventually gets all the money?

Is the theory that we soft-land, so rates go down again, and then . . . it’s fine?

Maybe that’s it.

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1. It’s also interesting to see that tightening, or attempted tightening, actually began back in 2018, which people are wont to forget.

2. Full post is here

A Smaller “Term Premium” means Lower Mortgage Rates