We will be giving some macro economic market updates on a weekly basis. No equity recommendations will be given in this commentary, and we encourage you to contact us if you have questions regarding any observations.
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This weeks issue: Interest rates, Interest payments, Federal debt, Government spending, Interest rate hikes, ESG investing versus profitable investing, Gen Z investors, Politicians age, Insider trading in Washington, power and politics, 2024 election and the stock market, Trump and Biden’s spending habits, Bank of Canada decision, Mortgage rates in Canada, OPEC+, Oil market, Energy sector, Oil stocks, Tight oil market, SPR release, inventory draws in energy.
U.S. government and interest rates
The Federal Reserve and Jerome Powell have hiked interest rates to 20-year highs, which has led to higher costs for consumers, corporations, and investors. The other entity that has also been negatively impacted by higher interest rates is the U.S. Federal Government which are the largest borrowers in the world.
The U.S. government has paid close to $850 billion over the last 12 months in interest payments. The interest they have paid on their outstanding debt is expected to increase over the next few months especially if rates remain elevated to start 2024.
The trailing 12 months of interest payments is more than double the 2018 number due to a higher FED funds rate and a higher outstanding debt value. The U.S. government has exponentially grown debt over the last 10-15 years. Most countries around the world have a similar problem and are over-leveraged. Governments have used trillions of dollars to bail themselves out of tough situations (Mortgage Crisis, Covid-19, Inflation). The leverage added on by countries eventually led to the inflation that we saw in 2021 and 2022 leading to interest rates being hiked to their highest point in over 20 years. The government essentially has created this problem, and there is no major solution unless it pulls back on its spending (something extremely unlikely to happen).