Jerome Powell Offered Cheap Money… Treasury Must Replace It at Today’s Price

“It is not what you earn, but what you keep, that builds true wealth.”

~ Joy Kareko

Note from Addison: Today we continue a series we’ve been calling “Financial Reckoning and the Trifecta Solution.” It’s perhaps entertaining enough to parse the debt crisis that’s been festering our entire adult lives. But we thought we’d venture a few solutions, too. Not that the political status quo is going to change on Capitol Hill any time soon.

In the summer of 2020, Jerome Powell stood before reporters and said the Federal Reserve wasn’t even thinking about raising interest rates.

Congress had authorized emergency expenditures during the pandemic. Treasury officials were selling securities to finance those commitments.

The government’s 10-year borrowing rate had fallen to approximately half a percent, according to our original research.

Investors were willing to lend to the Treasury on those terms.

But they weren’t signing an agreement to lend at the same rate forever.

Every security carried a maturity date. That date is comin’ due now.

We figure just about enough water has receded from that monetary tsunami to earn a unique spot in U.S. economic history and a cool buzz phrase like the “tech wreck” of 2000 or Global Financial Crisis of 2008 (GFC ‘08).

So far, we haven’t heard a good one. Just as in public, there was a period before the pandemic (you know, that time when they locked down the economy, then started mailing government checks directly to citizens?) and after.

What did those geniuses think was going to happen to the money, go up in value?

Yep, there was a time before the pandemic… and a time after. Seems almost petty to say something like “and we’ll never be the same.”

So we won’t.

The Contract Coming Due

Our research identifies approximately $1.8 trillion in Treasury obligations scheduled to mature during November 2026.

Those figures come from the original financing-calendar analysis and require confirmation against the individual Treasury records before publication.

As government securities mature, principal comes due, and investors expect their money back. Washington may be comfortable kicking the can down the road, but the bond market keeps a very precise calendar. (Source: Congressional Budget Office)

The practical obligation is the same for every maturing security: the Treasury must repay the principal to its holder. It’s the feature of the security that made it “risk-free” in the eyes of Wall Street traders and your local CFP alike.

If the government needs additional borrowing to meet that obligation, it must offer new securities. Since the pandemic, risk-free is more like an ambition than a promise.

The investor considering the replacement bond can examine the current yield, maturity and price. Nothing in that new offering requires the buyer to honor Powell’s remarks from 2020.

A bond issued at an exceptionally low rate may therefore be replaced by borrowing carrying a substantially higher cost.

The government still owes the principal. But the annual payments on the replacement debt can be — and are — considerably larger.

The Taxpayer’s Interest Payment

Our original presentation places annual federal interest expense above $1 trillion.

It also argues that more than one dollar in five paid in federal taxes now goes toward interest.

Those comparisons need to be checked against the definitions and periods used in the underlying government accounts.

Washington’s debt problem is bad enough. The interest bill is becoming a crisis of its own. Annual federal interest expense has climbed above $1 trillion, meaning Uncle Sam is now spending an extraordinary amount of money just to pay for the privilege of having borrowed it. (Source: Peter in G. Peterson Foundation)

But the payments themselves are obligations to bondholders.

The Treasury doesn’t purchase another bridge merely by paying interest on money borrowed to finance earlier spending.

And when Congress collects your taxes, the government’s interest bill competes with its other authorized expenditures for available financing.

A Royalty Before Another Bond

The Trifecta Solution proposes a different source of income to repay public debt.

It would use a portion of revenues from federal oil and gas resources, including an onshore royalty rate it proposes setting at 16.67%.

Congress would have to enact the necessary changes and identify which receipts could legally be redirected. (Heh, like I said…)

The detail does matter because the Trifecta also proposes using resource revenues to build new infrastructure and capitalize a wealth fund.

The same royalty payment cannot perform all three jobs.

A Treasury security retired with available revenue, without replacement borrowing, would reduce the government’s outstanding obligations.

A security repaid with money raised through a new bond offering would leave another creditor holding a claim.

The Treasury’s accounts can distinguish the two.

We’d like to see Congress make that distinction before promising a public-resource will, in fact, reduce what your children owe.

The creditors holding November’s maturing securities won’t be waiting for a new energy policy. They won’t be waiting for a sweeping policy change by November 16, either, will they.

They’ll be expecting payment on the dates written into their contracts. And backed by the “full faith and credit of the U.S. government.”

~ Addison

P.S. No one person can reasonably cover the political maneuvering in Washington, the technological upheaval of AI and every twist and turn in the stock market. So we decided to do something about it.

For the first time, Strategic Fortunes chief strategist Ian King, Money & Markets chief investment strategist Adam O’Dell and I have teamed up in a new service called The Alliance.

We’ve built a 12-position Final Reckoning Portfolio designed for whatever happens next in the markets. You’ll also receive weekly portfolio updates, alerts and new investment ideas from all three of us. Click here to get the full details.