#1241 Solo Episode | Interest Payments on the National Debt are Exploding Higher

Anthony Pompliano breaks down a major problem in the US economy, as interest payments on the national debt continue to explode higher. Topics include why it is happening, what the problems are, where the money is going, and potential solutions. ======================= Auradine, a leader in web infrastructure solutions including blockchain, AI, and privacy, has unveiled the world's first 4nm Bitcoin mining systems, featuring breakthrough EnergyTune™ technology, setting new standards in performance and energy efficiency. The Teraflux™ product line from Auradine offers best-in-class performance, efficiency, and total cost of ownership (TCO), positioning it as the optimal choice for Bitcoin mining needs. With EnergyTune™, a patent-pending technology, Auradine's Teraflux™ systems enable rapid demand response and optimal energy usage, fostering a symbiotic relationship with electrical grids, and contributing to sustainable energy practices. Designed and manufactured in the US, Auradine's Teraflux™ product line not only ensures cutting-edge technology but also mitigates supply chain risks and provides increased supply chain resiliency. Visit ⁠⁠www.auradine.com⁠⁠ for more information the Teraflux bitcoin mining systems. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  Hey everyone. Today's episode's a little bit different. It's going to be a solo episode with just me. And we've got to talk about a major, major problem in the US economy. Interest payments on the national debt are exploding higher. And I'm going to walk you through why it's happening. What exactly is the problem with that? Where is all that money going? And what we potentially could do to solve the problem? Before we get into today's episode, though, here is a word from our sponsors. This episode is brought to you by Auradine. They are a brand new startup led by a number of Silicon Valley legends who just raised $81 million to build the future of internet infrastructure. You're probably wondering what that means. Let me explain. There are numerous new disruptive technologies that are being adopted simultaneously, from blockchain to artificial intelligence to zero knowledge technologies.

• 0:46Anthony Pompliano?

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• 1:28Anthony Pompliano?

  That's A-U-R-A-D-I-N-E.com. Go check them out at auradine.com today.

• 1:36Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 2:01Anthony Pompliano?

  So the United States government had everyone in a panic earlier this year over the debt limit. Remember when all those headlines were coming out saying that the government was going to default? There was all this talk that if politicians could not come to an agreement on how they would finance the government moving forward, then the United States would spiral out of control. The debt would succumb us. Well, now that the crisis is behind us, we're starting to see the impact of the New Deal. The politicians, they worked right up until the 11th hour, but they did get that deal done. The problem is that America's debt continues to increase now, and it sits at just under $33 trillion. Now, when we say $33 trillion, that's almost a video game number. You can't even comprehend it. Well, if you put that into

• 2:42Anthony Pompliano?

  context, the US federal tax revenue is about $4.4 trillion. That's about $13,351 in revenue per citizen. And then if you look at the income tax revenue, that's about $2.3 trillion. And so that is not anywhere near the $33 trillion of the national debt. US federal spending, the official number is 6.3 trillion, and of course, that US federal budget deficit is about $2 trillion officially. The debt per taxpayer in the United States, if you take that $33 trillion number and you divide it by citizen, then that's $254,000. But not every citizen is a taxpayer, so debt per citizen is still right around $100,000. The $33 trillion

• 3:27Anthony Pompliano?

  in the United States in the national debt, that's about $100,000 per citizen, or about $255,000 per taxpayer. These are wild numbers. But we should really be focused on a bigger problem in the short term: the interest payments. The government just hit a scary milestone. We now spend as much money on the US military as we do on our own debt payments for interest. What am I talking about? All right. So the US interest payments now are hitting all the way up at the same exact amount that the military spending is. It's the first time in three decades. It's about just over $900 billion, closing in on $1 trillion each. So if we go and we look... Previously, we found ourselves in this situation

• 4:13Anthony Pompliano?

  once before in the 1990s. It was the late 1990s, but that was more than 20 years ago. Interest rates have been relatively low compared to historical norms during that period, and military spending had exploded thanks to the two forever wars. So what we saw was military spending was rapidly accelerating. And because interest rates were relatively low, we were staying with a big, big difference between military spending, a lot, and interest payments, relatively low amount. But since the withdrawal in Iraq and Afghanistan, you would think that the military spending would have come down, which coupled with high interest rates in the last 18 months, would create a scenario where military spending would not be that high. But that's not true. The scary part here is that US military spending,

• 4:57Anthony Pompliano?

  since the withdrawal in Iraq and Afghanistan, is higher now than it was during the two forever wars. Think about it this way. The wars ended, but the spending accelerated. If the United States is not engaged in the wars in Iraq and Afghanistan today, where's all the spending going? I don't know, but what I do know is we're spending more money today than we were when we were engaged in those two forever wars. And so this highlights just how bad we actually have it. Now, if all of a sudden military spending had actually accelerated and we're spending more now today than we were during the wars, how the heck are interest payments on our national debt equivalent to military spending? Well, according to the Peter G. Peterson Foundation,

• 5:38Anthony Pompliano?

  quote, "In 2022, the federal government spent $476 billion on net interest costs on its national debt." So 2022, we spent $476 billion. That total, which had grown by 35% from the $352 billion in 2021, was the largest amount ever spent on interest in the budget, and it equaled nearly 2% of GDP," end quote.

• 6:04Anthony Pompliano?

  So it was previously believed that our annual interest payments would cross $1 trillion by the end of the 2020s, and that would become the highest percentage of GDP in history. It was estimated to go from about 2% in 2022 to about 3.2% of GDP by the end of 2029. So that increase from 2% to 3.2% would mean that the debt payments would now end up being the highest percentage of GDP in history. But if we put that in context, the US government is now spending as much money on national debt interest payments this year in 2023 as they have historically spent on research and development, infrastructure, and education combined.

• 6:44Anthony Pompliano?

  Like, that is mind-blowing to me, that we are spending just as much money on interest payments for the national debt as we spend on infrastructure, education, and research and development. That's a huge problem and puts us in a situation that obviously doesn't suggest that we're actually allocating capital correctly. Now, not only do we have a spending problem, we now also have this interest payment problem in the country. The Federal Reserve is gonna have to figure out what to do moving forward. Do they cut interest rates and try to stimulate the economy further, and then they just ignore the fear of a resurgence in inflation? Or do they keep interest rates higher than they have been over the last decade and let investors and the government feel more pain? I don't know what they're gonna do. I don't envy their position at all. It's impossible to tell the future.

• 7:29Anthony Pompliano?

  It's impossible to understand what any one decision around monetary policy or interest rates is gonna have as an impact on the US economy. But what I do know is that we don't wanna live in a world where we're spending more money on interest payments than infrastructure and education. That is a declining country. That is a declining economy. We need to be taking the money that we have as a government, if we're gonna spend it, and put it into net positive, net creation things, not using it to spend on interest payments on the national debt. Now, spending $1 trillion on interest payments seems insane, but it looks like that's the path we're headed down. This would be the equivalent of about 50% of our average deficit over the last few years.

• 8:09Anthony Pompliano?

  So if we go back all the way to 2017, the federal deficit was $665 billion. Then in 2018, it rose to $779 billion. 2019, it rose to $984 billion. So we went from $665 billion in 2017 to a national deficit in 2019 of $984 billion. So it's about a 50% growth rate from 2017 to 2019. But then 2020 happened. And in 2020, we had a net deficit of $3.1 trillion. 3.1 trillion, almost three times larger in 2020 than in 2019. And 2019 had been a 50% growth over 2017. So that's almost six times as a bigger deficit in 2020 than we had in 2017.

• 8:51Anthony Pompliano?

  Then we go to 2021, 2.8 trillion dollar deficit. So almost the same as 2020. So two years straight, we contributed nearly $6 trillion in deficit. Then in 2022, it came back down. They should get credit for bringing it back down. But then they brought it back down to about a trillion dollars. So we were back right to 2019's level of a trillion dollars. It is now estimated in 2023, we're going to go back to 2 trillion. So if the 2023 estimate becomes reality and we have a $2 trillion deficit, that means in 2020, it would have been 3 trillion. In 2021, it would have been 2.8 trillion. In 2022, it had been a trillion. And then in 2023, it had been $2 trillion. The new normal is not hundreds of billions in the federal deficit. The new

• 9:33Anthony Pompliano?

  normal, including the last four years, is going to end up being a trillion or more in the national deficit. Now, if we go and we look at that, and we see that we have these high interest rates, that means that the interest payments are only going to continue to increase. And so that estimate that we were going to actually have a trillion dollars in interest payments in a single year by the end of 2029, looks more like that may happen this year or next year. And so we have a major problem. Because if you look at the Federal Reserve, the Federal Reserve is not talking about emergency rate cuts and bringing interest rates back down to 2% or lower. They're still talking about potentially even raising interest rates or keeping them where they are now. And so we now have a US government that is

• 10:18Anthony Pompliano?

  spending more money on interest payments than they are spending on infrastructure and education. But remember, not only is that an eye-popping stat, they also now, the interest payment is equivalent to our military spending. And our military spending is at an all-time high. So the US government is spending as much money to service their own debt than they are to defend our country. This is a big problem and it's one that we have to solve. In order to solve it, there is going to have to be a couple of different things that they do. First, we have to get interest rates down. If we get interest rates down, that will alleviate some of the pressure. The second, it would be very helpful if we could run a balanced budget.

• 10:58Anthony Pompliano?

  Maybe one where there's even a surplus, so we could actually start to reverse the problem of the national debt. That is very unlikely. Both sides of the aisle always talk about balanced budgets. None of them ever do it. But the third thing, and one part that a lot of people don't really pay attention to, is if we can continue to generate GDP growth, and that GDP growth leads to more tax revenue, that tax revenue, then on a percentage basis, being diverted into things like interest payments would be a lower percent, and therefore, we would have extra money to be able to spend on other things, like infrastructure, research and development, education, military, etc. And so, in a weird way, what we really should be doing is cutting. We should be cutting interest rates.

• 11:42Anthony Pompliano?

  We should be cutting down on the contribution to the federal deficit every single year, etc. But we have a third option, which is we could try to outgrow the problem. Now, we will never actually outgrow it. We will not be able to generate enough GDP growth, to generate enough tax revenue to actually eat into this problem in any sort of material way over the long term. But what we can do is we can start with 2024. We can actually solve the problem in 2024. How do we get into a situation where we have a surplus budget, where we are spending less in terms of these interest payments, and we have extra money? It's a lower percent of the actual federal budget that is being spent on interest payments, and that frees up cash for everything else. Now, I'm not holding my breath.

• 12:25Anthony Pompliano?

  I don't think there's anyone who's a politician who's actually committed to doing this. It would be highly unpopular, because it would require cuts. We would have to do things. It would be unpopular with citizens, or with their colleagues in the Senate or in Congress. But if we really do want to solve this problem, that's what we gotta do. Because it is absurd to think that we spend as much money paying interest on our national debt than we do on the military, and we spend... Spend more on interest payments than we do on education and on infrastructure. We live in a country where American infrastructure is crumbling. We have to improve it. We have to reshore. We have to kickstart American manufacturing. We have to rebuild roads, bridges, trains, et cetera.

• 13:09Anthony Pompliano?

  But we can't do it if a big portion, big meaning a trillion dollars a year from our federal budget is being diverted to pay interest on the national debt. So that's the problem. That's how big the problem is, and that's how I think that we can solve it. The odds that I would place on this actually being solved, less than 5%. That's sad to say. It's depressing. It's frustrating, but that's just where we find ourselves. It is very unlikely that anyone is going to solve this problem because no one is incentivized to solve the problem. And so Warren Buffett had this great thing. I'm going to paraphrase. He basically said, if you want to balance the budget, what you should do is you should simply say that any politician who is not able during their term to balance the budget

• 13:53Anthony Pompliano?

  can't get reelected. That's it. They'll all balance the budget tomorrow. If you say you can't get reelected unless you solve this problem, they will all solve the problem. So it's not a can they solve it? It is simply a will. They know that regardless of whether they solve the problem or not, people are still going to vote for them. And if people are going to still vote for you, it's kind of like if you're at work and you don't do your job, but you're still going to get paid. Eventually you stop doing your job. There's no accountability and that's a huge problem. That's why we find ourselves with one, two, or three trillion dollar annual federal deficits. And that's why we find ourselves now in a position where we are likely going to be paying a trillion dollars a year in interest payments on that national debt. I hope you enjoy some of these shorter solo episodes. Let me know.

• 14:37Anthony Pompliano?

  Either send me an email, tweet at me, find out my smoke signal, do whatever you want to do, figure out a way to contact me. Let me know if you like these or not. I hope you guys learned something today. Make sure that you're subscribed to the podcast on Apple, Spotify, go to YouTube. Make sure you subscribe there as well. And I will talk to you guys during the next episode.