Jim Welsh predicts that bond yields will rise to 7.5%

ear Treasury yield is going to probably hit 7.5%. So that’s a whole lot higher than a lot of people are probably thinking, but I’m convinced that that is likely to happen. And we’re already starting down that path.Puplava:Well, I think that’s going to have significant implications. If we look at the other chart on page 20, the impact that this is going to have on government financing is going to be significant. It appears that 36-38% of U.S. debt is going to roll over by 2026 at these higher rates. That means that if the government maintains its current levels of debt, we’re going to see a significant increase in interest expense in relation to GDP. What are some of the implications of these higher rates for the U.S. government?Welsh:Exactly. So, based on CBO projections and their baseline numbers—and by the way, I’m hoping the CBO numbers prove to be right and I’m wrong, but I’m afraid I’m not. They’re projecting that by the end of 2026, the U.S. debt will be $42 trillion, interest rates will be 5.2%, and interest on the debt will be about $2.2 trillion. What’s important about these numbers is that in the fiscal year that we’re in right now, interest on the debt is consuming about $570 billion of U.S. tax revenue. But what I project is that by the end of 2025, that’s probably going to be just under $700 billion, and then by the end of 2026, it’s going to be over $1 trillion. In 2030, the CBO predicts that the amount that the U.S. is going to have to pay on the debt will be $1.6 trillion. So between that two-year period, between 2026 and 2030, you’re going to see a big jump in the rate of acceleration because, as the debt increases, as rates go up, more and more of the tax revenue is going to go just to pay the interest on the debt. So, the implication is, if we don’t make any changes in Social Security, Medicare, and the like, it’s going to consume so much of revenue that it’s going to make it increasingly impossible.Puplava:Well, you know, this has been a long-standing problem for the U.S. We’ve seen more of this over the past 50 years with government spending averaging well above what we take in revenue. This doesn’t seem to be an issue that either party wants to address. We haven’t had any significant progress into dealing with deficits, structurally, at all. What are your thoughts on that?Welsh:Well, what I find amazing, Jim, is that in the last five years, our spending as a percentage of GDP has averaged 24%. That is running in excess of the 50-year average of 21%. So by default, what you’re doing is you’re borrowing money that you don’t have now to pay for stuff today. And it’s going on at an increased rate rather than slowing down. The revenue side, as I pointed out earlier, the average for the four years before the pandemic hit was about 17.5% to 17.6% of GDP. And in April, under the Trump administration, it hit almost 17.3%, then it dropped to 16.3%. That’s where we averaged for those four years. I expect that when we get the last of the numbers for fiscal year 2021, according to my calculations, that number is going to be just under 17.1%, or 17.2%. So we’re running well below not just the pre-pandemic average of 17.5% to 17.6%, and the average that the government spent for the four years preceding that. One of the problems right now is that we’ve had four budgets under Trump and three under President Biden. None of the seven budgets that were presented addressed this structural issue that we have with the deficit. It just keeps getting bigger.