Yesterday I mentioned that the national debt as a percent of GDP had declined under Joe Biden. And yet, interest payments on the national debt have skyrocketed from $500 million in 2020 to over a trillion dollars a year today. What's going on?
The national debt is held in treasury bills, treasury notes, and treasury bonds. Some are short term and some are long term. Here's the average:
On average, the national debt is held in securities with a six-year maturity. So when the Federal Reserve raised interest rates by five points, interest on the debt didn't instantly go up five points. It went up gradually as old notes were redeemed and replaced with new ones at a higher rate.
Overall, the Treasury Department says that average interest on the debt has gone up about 1.5 percentage points since 2020—from 1.77% to 3.32%. That's a lot less than five points, but it's still nearly double. So we have this:
In nominal terms—which is what gets most of the attention—the national debt has increased about a third and the interest rate paid on the debt has doubled. That means total interest on the debt has gone up roughly 130%. So even if you look at interest as a percent of GDP, it's still gone way up:
Bottom line: This is all about the Fed raising interest rates. If that hadn't happened, interest on the debt would have gone up about the same as GDP and would currently be somewhere around 2.5% of GDP, just like it has been for the past couple of decades. When interest rates go down, interest on the debt will go down too.
A recent paper investigated veterans of Iraq and Afghanistan to find out how much they were claiming in VA disability benefits. The answer is: a lot.
The study primarily looks at male soldiers who joined up between 2001 and 2011 and were assigned to a brigade combat team. What the chart above shows is that general disability payments didn't go up. This includes SSI, SSDI, and workers compensation. However, VA disability payments skyrocketed.
Why? Excellent question, and one that the authors ended up unable to answer. They controlled for a vast number of variables (age, race, IQ, number of years deployed, etc. etc.) and it turned out that these predicted exactly nothing:
Outcomes were measured eight years after enlistment, so 2009 through 2019. None of the things they thought might predict disability payments did so after the first few years. By the 2011 cohort, they explained literally zero.
So again, why have VA disability payments skyrocketed? The authors first suggest it's because we've passed a bunch of laws that make it easier to claim benefits. They back this up with a long list of changes to the law. But still, why would later cohorts take advantage of these laws more than earlier cohorts? I'm not sure this explains much either.
In fact, it turns out the whole thing is even more mysterious than it seems:
The results show that deployments have become less dangerous over time and simultaneously generated larger increases in VADC receipt.... The causal effect of a 10-month deployment on VADC compensation more than doubled during this period.... SSI/SSDI, by contrast, shows a very different pattern. The effect of a 10 month deployment on total payments from these programs decreased from $490 to $145 over the same period, consistent with the declining combat risk.
Disability payments from general programs decreased, as you'd expect from soldiers who were less exposed to combat later in the wars. But VA benefits surged.
Why why why? The final attempt to explain this is something else entirely: declining standards for new recruits.
Changes in deployment and exposure to violence across cohorts effectively explain none of the changes.... Observable selection, however, is a far better predictor of changes in noncombat deaths.... As more soldiers with lower AFQT scores and more moral waivers enlisted in the mid-2000s, noncombat deaths increased.
Hmmm. Noncombat deaths rise for a few years partly as a result of lower recruiting standards (and other things), but by 2010 it's showing zero effect. Did recruiting standards really change that much in two years? And even if this is real, the effect is smallish and only for noncombat deaths. It doesn't seem to account for anything else.
In the end, the authors suggest that greater generosity in awarding disability benefits, along with changes in the quality of the soldiers, can explain some of the huge increase in VA disability benefits. But even by their own account, not very much of it. The whole thing remains a mystery.
POSTSCRIPT: If I had to guess, I'd say disability benefits have risen largely because later cohorts were far more aware of the benefits available to them, and far less squeamish about claiming them. But the study didn't look at that, so it's only a guess.
It recovered slightly yesterday when the Russian central bank intervened, but it's still down 30% since the war started and 20% over just the past couple of months. Western sanctions continue to tighten, driving the ruble ever downward.
FRED has added 3 data series for the Fujita, Moscarini, and Postel-Vinay (FMP) Employer-to-Employer (E2E) Transition Probability. The E2E Transition Probability is a monthly measure of the rate at which U.S. workers transition from one employer to another in a given month.
This sounds a little dry, doesn't it? But it turns out that the recent history of the FMP series is actually kind of interesting:
FMP measures how likely it is to change jobs. Generally speaking, this goes down during recessions as people burrow in and just hope not to be laid off, and then goes up when times are good and people are feeling optimistic. Recently, it went up early in Biden's term, started to decline as inflation bit, but then has been going steadily up since March.
This is not the biggest deal in the world, but it suggests, once again, that if you measure what people actually do, as opposed to what they tell pollsters, they were feeling increasingly good about the economy for almost the entire election season. The economic explanation for Donald Trump's win just doesn't seem to hold water.
Trump creating a fake crisis with Mexico over fake tariff threats only to settle it in exchange for fake concessions all over a holiday week when he’s not even in office yet is a reminder of how exhausting-yet-boring four full years of this will be.
Whenever Trump says some outrageous thing—big tariffs until Canada and Mexico stop immigration and fentanyl!—I dither over whether to bother responding. Is he serious? Or just tossing out red meat for the rubes? I sure don't know. But I do have this regular image in my head of Trump cackling as a bunch of earnest pundits all rush off to write thumbsuckers about why his latest broadside is ridiculous and stupid.
But you never know. Maybe he's so stupid he didn't know Mexico was already slashing illegal immigration, and was therefore pleasantly surprised when Claudia Sheinbaum immediately "caved in" and agreed to slash illegal immigration. Who can divine the mind of Trump?
Either way, though, it accomplishes something Biden never did: making it loudly clear which side he's on. Even if your real-world ability to do something is limited—as it is with immigration, inflation, Afghanistan chaos, etc.—people still want to hear your outrage about it. They never really did with Biden but they sure do with Trump. That may involve a lot of phony stagecraft, but phony stagecraft has a long and illustrious history of working pretty well.
I went off in search of turkeys to photograph yesterday, but I had no luck. The ones I knew about seem to have disappeared. However, the neighborhood that formerly had the turkeys still has lots of horses, so how about a nice picture of a horse instead?
When the pandemic hit, federal debt spiked up over 100%—partly because of huge spending and partly because GDP plunged. GDP recovered the next quarter and the debt level settled at 97%.
Since then we've spent tons of money and run huge annual deficits, and the debt level has increased by $6.5 trillion. But GDP has increased by $7.5 trillion and the national debt has declined to 95% of GDP.
In particular, take a look at the first quarter of 2021, when President Biden signed the $1.9 trillion ARP bill. There's not a hint of it. It stimulated growth so much that it completely swallowed the additional spending.
Of course, our next recession will put paid to all this and debt will again rise. But for the moment at least, we can all breathe easy.
My Twitter feed is full of a new right-wing grievance: Choke Point 2.0. Naturally I had to figure out what it was all about.
First, though, a tiny bit of background. Back in 2013 the Department of Justice started going after online payday lenders they suspected of fraud. They did this primarily by pressuring banks and third-party payment systems to cut them off, and eventually this was given a name: Operation Choke Point. It operated for four years until it was killed off in 2017.
OCP generated a small bit of controversy after it expanded to go after porn stars, gun shops, and a few other things, but not much. That's why you've probably never heard of it.
So what is OCP 2.0? Yesterday Marc Andreessen was on Joe Rogan's show and, after explaining the original OCP, unleashed this MAGA bombshell:
This administration extended that concept to apply it to tech founders, crypto founders, and then just generally political opponents.... Choke Point 1.0 was fifteen years ago against the pot and the guns. Choke Point 2.0 is primarily against their political enemies and then to their disfavored tech startups. It's hit the tech world—we've had like 30 founders debanked in the last four years.
Really?
Yeah yeah yeah, it's been a big recurring pattern.... By the way, no due process, none of this is written down, there's no rules, there's no courts, there's no decision process, there's no appeal. Who do you appeal to?
And that's it. Andreessen provided no evidence for this, no names of the debanked, and then Rogan moved on.
So is this for real? As a general conspiracy theory it's been around for a couple of years, mostly among crypto enthusiasts who claim that government action against certain crypto-friendly banks—Silicon Valley Bank, Signature Bank, and Silvergate Bank in particular—and certain crypto firms—Ripple Labs, Binance, Coinbase—is evidence of a wide-ranging effort to crush legal crypto activity.
Maybe. But as a few level-headed observers have pointed out, the crypto industry is not exactly sunshine and unicorns. Among many others, FTX, Terra/LUNA, Three Arrows, Genesis, Voyager, Celsius, and BlockFi have all failed, mostly due to fraud of various kinds. If there were any industry in the world the Department of Justice might take a keen interest in, crypto would be it. No conspiracy theory needed.
But even if this really were the fruit of anti-crypto sentiment, it still doesn't confirm Andreessen's sensational claim that 30 founders he personally knows (presumably because they were funded by Andreessen Horowitz) have been deliberately debanked. That's a whole different thing. So far I've been unable to find anyone else who's said anything remotely similar.
So that's where we are. If you hear about Operation Choke Point 2.0, it's usually a claim that government actions against crypto firms aren't just periodic regulatory busts against bad actors, but are part of a coordinated effort to kill off crypto. In other words, a garden variety conspiracy theory.
But if you hear the Andreessen version, it's about Joe Biden weaponizing the government to go after both his political enemies and "disfavored tech startups"—whatever those are. That's a whole different level of derangement.
President-elect Donald Trump has chosen relatively conventional experts to lead his second administration’s economic policy, even as he pursues tariffs that could upend the international trade order and fills much of his Cabinet with ideologues and loyalists.
Trump tapped a former Fox News host to lead the Defense Department and a vaccine skeptic to run the Department of Health and Human Services; his choice for attorney general, former congressman Matt Gaetz (R-Florida), withdrew from consideration after even GOP senators said they doubted he could be confirmed.
My first thought is this: Why is it that when reporters run down all the crazy people Trump has picked to staff his administration, they never mention Tulsi Gabbard? She strikes me as the craziest of all—which is really saying something considering that Team Trump contains RFK Jr., Elon Musk, and (for a while) Matt Gaetz. But she seems to be mostly staying under the radar even though Trump has nominated her for a deeply sensitive post (head of intelligence).
My second thought is: This piece is completely right. MAGA folks were basically all on board with crazy-is-good except for the Treasury Department. The Wall Street Journal just came right out and said it:
Disrupt away, the editorial said, "disruption is needed in many places." But not in economic policy. So we got the conventional Scott Bessent as treasury secretary, Kevin Hassett heading the CEA, and Robert Lighthizer reprising his role as "trade czar."
The same was true during Trump's first term. Steve Mnuchin was a no-drama treasury secretary, Jerome Powell was a nice safe Fed chair, Jay Clayton stayed in his lane at the SEC, and so forth.
The thing that surprises me is that the Defense Department hasn't gotten the same treatment. I would have thought that Republicans in Congress, who take defense seriously, would insist on a serious candidate. Instead they got Pete Hegseth, a Fox News talking head whose only qualification is writing a book about how he holds the military in contempt. Why are Republicans insisting that Trump take Treasury seriously but apparently don't care if Defense is run by an amateur demagogue?
On average, the national debt is held in securities with a six-year maturity. So when the Federal Reserve raised interest rates by five points, interest on the debt didn't instantly go up five points. It went up gradually as old notes were redeemed and replaced with new ones at a higher rate.
In nominal terms—which is what gets most of the attention—the national debt has increased about a third and the interest rate paid on the debt has doubled. That means total interest on the debt has gone up roughly 130%. So even if you look at interest as a percent of GDP, it's still gone way up:
Bottom line: This is all about the Fed raising interest rates. If that hadn't happened, interest on the debt would have gone up about the same as GDP and would currently be somewhere around 2.5% of GDP, just like it has been for the past couple of decades. When interest rates go down, interest on the debt will go down too.
