Interest on Federal Debt Hit $104B in First Half of FY2012—Despite Low Interest Rates

April 5, 2012 - 3:59 PM
Barack Obama, Tim Geithner

President Barack Obama and Treasury Secretary Tim Geithner shake hands at the State of the Union Address on Jan. 24, 2012. (AP Photo/Saul Loeb)

(CNSNews.com) - Even though the U.S. Treasury in March was paying an average interest rate of only 2.187 percent on Treasury securities, the federal government still needed to pay a record $104.413 billion in interest on its publicly held debt in the first six months of fiscal 2012, the most it has had to pay in the first half of the year in the 15-year span for which the Treasury Department has posted daily statements online.

Fiscal Year 2012 began on Oct. 1, 2011 and will end on Sept. 30, 2012.

The $104.413 billion in interest the Treasury paid to bondholders from October through March, as reported on the Daily Treasury Statement for March 30, was the most the Treasury has paid in interest on it securities (in non-inflation-adjusted terms) in the first half of a fiscal year since at least 1998.

In the first six months of fiscal 2011, the Treasury paid $101.399 billion in interest on Treasury securities held by the public, according to the Daily Treasury Statement for March 31, 2011. For the full fiscal year 2011, the Treasury ended up paying $208.693 in interest on its publicly held debt.

When adjusted for inflation, the Treasury actually paid more interest on the government's publicly held debt back in the late 1990s and early 2000s than it has the last two years. However, while the government's debt was much smaller back then, the interest rates paid by U.S. Treasury were much higher.

In the first half of 1998, the Treasury paid $91.362 billion in interest on its publicly held debt. That equaled $127.606 in 2012 dollars, according to the Bureau of Labor Statistics inflation calculator. In the first half of 1999, the Treasury paid $95.175 billion in interest, which equaled $130,059 billion in 2012 dollars. In the first half of 2000, the Treasury paid $89.054 billion in interest, which equaled $121.694 billion in 2012 dollars. And, in the first half of 2001, the Treasury paid $82.833 billion in interest on the debt, which equaled $106.482 billion in 2012 dollars.

In March 2001, however, the average interest rate on marketable Treasury securities was 6.435 percent--that is about three times as high as the current average rate of 2.187 percent.

Since 2001, the Treasury has paid lower inflation-adjusted amounts in interest to cover a growing debt because the interest rates have been lower.

In recent years, the Federal Reserve has helped keep the interest rate for U.S. government debt down by purchasing massive amounts of it.  In its monthly report for March, the Fed said it now owns $1.662 trillion in U.S. Treasury securities, making it the largest single owner of U.S. government debt.

After the Federal Reserve, the second largest owner of U.S. Treasury securities are entities in Mainland China, which, as of the end of January, owned $1.159 trillion in U.S. debt.

The Chinese, however, have virtually divested of short-term U.S. Treasury bills, which mature in one year or less. In May 2009, the Chinese owned $210.407 U.S. T-bills. As of this January, they owned only $3.028 billion. That means the Chinese have diminished their ownership of T-bills by almost 99 percent in less than three years.

In March, the U.S. Treasury was paying an average of only 0.093 percent interest on these T-bills the Chinese no longer want to buy. However, Treasury was paying an average of 5.554 percent interest on 30-year Treasury bonds.

Of course, if the Treasury is forced to pay higher interest rates to sell debt, it will increase the cost not only of the new debt it issues to cover ongoing deficit spending but also the cost of rolling over old debt as bonds mature and their owners redeem them.

The Treasury divides the federal debt into two general categories, debt held by the public and intragovernmental debt. The Treasury must pay interest on the debt held by the public to the owners of the debt--including the Chinese. On the intragovernmental debt, theoretically pays interest to adding credits to the trust funds it has borrowed the money from.

As of the end of March, when the first half of fiscal 2012 ended, the total U.S. debt was $15.582 trillion. Of that, approximately $10.887 trillion was debt held by the public and $4.731 trillion was intragovernmental debt.

Because the Social Security tax no longer brings in sufficient revenue to cover all Social Security beneft, the intragovermental debt has actually been shrinking in recent months. On Dec. 30, 2011, for example, it was $4.775 trillion, but as of the end of March it was down to $4.731 trillion.

The publicly held debt, meanwhile is on a steady upward trend. When President Barack Obama was inaugurated on Jan. 20, 2009, it stood at $6.307 trillion. At the end of March, it hit $10.847 trillion.

Interest Paid by Treasury in First Half of Fiscal Year

(Dollar amounts are in millions.)

......................Payments....Constant 2012 Dollars...Average Interest Rate

2012:             $104,413...............$104,413.....................2.187 percent

2011:              101,399..................102,627.....................2.370

2010:               89,582....................93,529......................2.501

2009:               85,992....................91,253......................2.854

2008:               90,444....................95,636......................4.215

2007:               81,077....................89,023......................4.971

2006:               72,308....................81,656......................4.595

2005:               65,114....................75,904......................3.937

2004:               64,843....................78,149......................3.607

2003:               67,404....................83,399......................4.110

2002:               74,553....................94,347......................4.999

2001:               82,833...................106,482.....................6.435

2000:               89,054...................121,694.....................6.477

1999:               95,175...................130,059

1998:               91,362...................127,606