Questions and Answers
What is the current amount of U.S. debt?
The cost of paying interest on U.S. debt has decreased since 2020.
False
How much is the current average daily interest expense on U.S. debt?
$3 billion
If the Fed cuts interest rates by 1%-point, the daily interest expenses will decline from $3 billion per day to $______ per day.
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What is the expected effect of a potential Trump administration on primary deficits over the next 10 years?
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Match the politicians with their expected impact on primary deficits over the next 10 years:
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JPMorgan analysts believe the current fiscal policy trend is sustainable.
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What demographic shift is impacting the supply of capital according to analysts?
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Study Notes
U.S. Debt and Interest Costs
- U.S. debt reached $35.3 trillion, with daily interest payments averaging $3 billion, as reported by Apollo's chief economist.
- Interest expenses have doubled since 2020, increasing from $2 trillion two years ago due to the Federal Reserve's rate hike policy aimed at controlling inflation.
- Higher Treasury bond yields result in increased costs for servicing U.S. debt.
Potential Impact of Federal Reserve Rate Cuts
- The Federal Reserve is expected to cut interest rates, which could reduce daily interest expenses from $3 billion to $2.5 billion if rates decline by 1 percentage point.
- The fiscal year for the federal government concludes at the end of the month, with year-to-date interest payments on U.S. debt already surpassing $1 trillion.
Future Budget Deficits
- Predictions indicate that budget deficits will worsen under either presidential candidate, influencing total debt levels despite potential interest rate cuts.
- Under Donald Trump, primary deficits could rise by $5.8 trillion (conventional) or $4.1 trillion (dynamic) over the next decade.
- Under Kamala Harris, primary deficits are projected to increase by $1.2 trillion (conventional) or $2 trillion (dynamic).
Sustainability Concerns
- JPMorgan reports an unsustainable outlook for government finances, regardless of the election outcome, highlighting concerns over profligate fiscal policies following the pandemic.
- The en masse retirement of baby boomers is contributing to a decrease in savings, decreasing the overall supply of capital and affecting economic growth prospects.
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Description
Test your knowledge on the current U.S. debt situation and the implications of rising interest rates. This quiz covers the staggering figures related to national debt, interest payments, and the recent economic policies by the Federal Reserve. Understand the impact of these financial dynamics on the economy.
