U.S. Federal Intergenerational Debt: Rendered and Layered

It is a common trope among Austerians that the U.S. is passing on unsustainable debt to our children and grandchildren. And certainly there are some scary numbers out there, for example “$17.4 trillion!!” A very real number. But maybe it would be useful to render that number down so as to calculate real incidence of that debt and debt service within and between generations. With some real numbers and associated tools. With commentary mostly defered until (duh) Comments.

Total U.S. Public Debt (to the Penny)
http://www.treasurydirect.gov/NP/debt/current
Public Debt: $17,472,131,682,925.49 in turn the sum of:
Intragovernmental Holdings: $4,992,508,245,067.06 and
Debt Held by the Public: $12,479,623,437,858.43

Now for reasons that can be explained in Comments there is no need to actually pay down Intragovernmental Holdings and instead reasons why the various accounts that comprise it should increase in nominal terms over time, so I am just going to ignore it for the purposes of this post.

Debt Held by the Public: $12,479,623,437,858.43
Almost all of this is held in a combination of Treasury Bonds, Notes, Bills and TIPS with the major balances being in the first two categories. The respective holdings can be seen in the following graphic with specific numbers available by hovering your cursor:
http://www.treasurydirect.gov/govt/charts/principal/principal_debt.htm
Treasury Bonds (20 and 30 year Securities): $1.463 trillion
Treasury Notes (1-10 year Securities): $8.034 trillion

So right away we can see that ‘Long Term Debt’ as a percentage of ‘Total Public Debt’ is $1.463 tn/$17.472 trillion or 8.4% of total Public Debt. But of course somewhere between a half and a third of current 20 and 30 year Bonds have maturities in the next 10 years meaning that the actual amount of Public Debt due in years 11+ is commensurately less than that number. (Precise number left to the commenters). Now of course this calculation ignores two factors: 1) rollover of shorter term debt and 2) debt service. So maybe we can address the second factor first:

Average Interest on Public Debt
http://www.treasurydirect.gov/govt/rates/pd/avg/2014/2014_04.htm
Total Marketable: 2.007%
Bonds (20 and 30 years): 5.011%
Notes (1-10 years): 1.808%

Okay those are the numbers. Implications, arguments and outright demagogery under the fold and in Comments.

The most striking number to me is that if you take the Coupon Rates of all Marketable U.S. Debt, including Long Bonds that were issued with rates above 8% that the average works out to 2.007% or essentially identical to the Feds current Inflation Target. Which if it ever eventuates would seem to this observor to mean that existing debt going forward would carry an average Real Interest Rate of zero. Of course any new debt and any rollover debt would incur whatever the market rate would be, but it is fairly hard to argue that the current yield curve on existing debt represents some huge pass forward from Boomers to Millennials. (But feel free to weigh in in the Comments).

But as noted in a previous post the case gets even harder than that. Because in the course of three rounds of Federal Reserve QE huge portions of future 20 and 30 year issues have been bought up on behalf of the Feds System Open Market Account.
http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html
Now while this particular web page doesn’t explicitly break out Bonds vs Notes we can see that the total is $2.2 trillion while an inspection of the T-Notes and T-Bills tabs shows that for Long Bonds with maturities from 2018 to 2027 and Coupon rates ranging from 6.127% to 9.0% that the Fed holds positions ranging from 53-70% of total outstanding (with 70% apparently being a self-imposed limit). And since the Fed rebates all ‘profits’ to the Treasury this would mean we have to discount even that average 5.011% interest rate on Bonds accordingly. All of which would drive the actual effective Debt Service on ALL Public Debt to the actual public under the Feds current inflation target.

Which pretty much translates to no forward passage of debt to our Grandchildren at all. Even if you discount to zero the value of whatever past infrastructure funded with that $17.4 trillion to future productivity.

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