Good morning. My name is Chad Taylor, managing partner with MDT Financial Advisors here at Houston, Texas. Lately we've been doing a few of, we call it the MDT market minutes, and usually we come up with a video based on questions we're getting from different clients or prospective clients.
And so one that I've been getting a little bit of lately, and I just wanted to get on the talk about it and I found a chart that I thought was interesting, is kind of on the impact of rising interest rates on the national debt.
So we all heard in the news in the last couple of weeks that the US national debt currently exceeds $30 trillion, which is a big number, right? It's more than 100% of the gross domestic product or GDP of the US according to the congressional budget office.
These levels are high. And I'll just share my chart and kind of put it in perspective what we're talking about here. So you can see this chart and the title of it is the impact of rising interest rates on the national debt.
And so you can see there, let's just focus first on the orange dotted line. That is the US national debt. You can kind of see from 92 to early 2000s, there just kind of went down a little bit and then it started up and now you can see where we are to the top right, which is basically a percentage of the GDP, 100% of the GDP at this point.
Now we think, and we believe that the US can support this higher debt level given its global dominance of the economic position and the dollar's role as the world's primary reserve currency.
Now interest rates, that's a different discussion and that is going to cause some changes. Interest rates have been pretty low up until really the last 12 months. And I know we've talked about that a few times as far as what's happened to the stock and bond market.
But if you look at that purple line there, you can kind of see the purple line shows the net interest as a percentage of the federal budget. And I was kind of surprised by this, but back in the 90s, you can kind of see that really 15 to 16% of the national budget went to paying interest. That's higher than I remembered.
But then since interest rates have been low for a decade plus now, you can see how the purple line had fallen and now is rising again, not quite back to where it was but rising.
But we've been here before. And if rates stay up, then we have this issue. We still think that the federal government can handle this, but it does limit if there's a new crisis down the road.
And could there be a crisis? Well, there always seems to be. So yes, probably we expect volatility in the stock market or the equity markets to be a little higher than they've been for the last 15 years just because of some of this that we're dealing with.
So this chart shows a lot. I do think it's manageable at this point based on historical perspectives, but it is something to keep an eye on. If you have any questions or just would like to talk, please let us know. I appreciate it and have a great day.