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Robert Lambourne: Interest cost of U.S. 'special debt' still falls as debt and rates rise

Section: Daily Dispatches

By Robert Lambourne
May 27, 2024

This note updates a report from March 17 concerning the gross interest cost reported in the last 12 monthly U.S. Treasury statements for the Federal government. That report is here:

This note highlights a strange pattern of interest payments reported on the so-called Special Debt, the portion of the U.S. federal government debt held by various government-sponsored trust funds. Surprisingly, despite rising interest rates and higher debt levels, the interest reported paid in the monthly treasury statements has fallen on this portion of the federal government debt since November 2022.

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The table below has been compiled from the monthly Treasury statements. The latest statement for April 2024 can be found at the link below. The interest cost for the month is reported in this statement within the costs of the Treasury Department.

The table reports the rolling 12-month gross interest charge arising from the debt of the federal government in millions of dollars, beginning with the 12 months ended 30 September 2022 and finishing with the 12 months ended 30 April 2024. This 12-month interest charge is split into two parts. 

The first column reports the interest payments arising on the so-called Special Debt, which is the debt held by the various trust funds sponsored by the federal government. This reported interest cost is based simply on interest payments made in the last 12 months. This debt totals about $7.1 trillion as at 30 April 2024. 

The three largest federal-sponsored trust funds are Military Retirement, Federal Employees Retirement, and Federal Old Age and Survivors Insurance. These three largest trust funds hold $5.3 trillion of the $7.1 trillion of Special Debt issued as at 29 February 2024. 

The second column is the debt held by the public, which effectively refers to all investors other than government-sponsored entities. This debt stands at about $27.5 trillion as at 30 April 2024. The interest cost reported on this debt is calculated on a full-accruals basis, which means that the interest payable is accounted for fully in any month regardless of when it is paid. The accruals basis is generally accepted as the proper way to record interest charges and it seems quite odd that the U.S. Treasury does not report this number for the interest on the Special Debt.

A quick review of the second column of figures highlights that the rolling 12-month interest charge on the debt held by the public is climbing relentlessly and has risen in the 12 months ended 30 April 2024 to $817.5 billion from $489.2 billion for the 12 months ended 30 September 2022. 

The reasons for this increase are widely understood: the increase in the amounts borrowed together with higher interest rates on both the refinancing of maturing debt and the interest cost of new debt.

The pattern of the interest charge on the special debt is rather different. The peak 12-month rolling interest charge was $246.4 billion in the 12 months to 30 November 2022. The most recent 12-month charge of this portion of government debt is $226.0 billion to 30 April 2024. This is $20.4 billion below the peak. 

This seems quite strange. The special debt has increased from $6.6 trillion as at 30 September 2022 to $7.1 trillion as at 30 April 2024. At first glance it seems entirely logical to expect this portion of federal government debt to be affected by rising interest rates in a way similar to the debt owed to the public. 

Changes in the maturity profile of the Special Debt might be an explanation, with perhaps a lower mix of long-term debt in place now. Still, the decline in the reported interest charge seems odd. 

A cynic would question whether an effort has been made to reduce the interest cost on this portion of federal government debt to avoid adverse comments on the trend of much higher total interest costs. As far as this writer is aware, no official explanation of this reduced interest cost of the Special Debt has been provided. 

The interest charge reported on the debt held by the public has increased by more than 67% since the 12 months to 30 September 2022, and if this percentage is applied to the Special Debt rolling 12-month interest paid, it would be $381.4 billion in the 12 months ended 29 February 2024. This is purely for illustrative purposes, but this is around $155 billion higher than the cost reported and suggests that this reduced interest cost is significant.

Contradictory remarks have been made by various agencies concerning the nature of the Special Debt. For the purposes of this report it is assumed that it is still the intention of the U.S. government to recognize that the liabilities of the various trust funds holding parts of Special Debt as their major asset class are funded separately and their assets are separated for this purpose. 

If this is the case, then it is correct to assume that the Special Debt is simply a debt of the federal government.


U.S. federal government interest cost / Rolling 12 months

                SPECIAL    PUBLIC     TOTAL            
Sep-22    228363    489248    717611
Oct-22    243669    499577    743246
Nov-22    246415    515821    762236
Dec-22    242551    529188    771779
Jan-23    240399    540256    780655
Feb-23    234496    550347    784843
Mar-23    235245    574404    809649
Apr-23    233236    592390    825626
May-23    223238    599278    822516
Jun-23    225146    622012    847158
Jul-23    219141    632789    851930
Aug-23    206842    639092    845934
Sep-23    213137    666170    879307
Oct-23    221232    699427    923659
Nov-23    222490    723073    945563
Dec-23    220017    737295    957312
Jan-24    219120    756310    975430
Feb-24    225727    780300    1006027
Mar-24    220441    796662    1017103
Apr-24    226046    817468    1043514            


Appendix -- Special Debt

Contradictory statements have been made by various official agencies about the nature of the Special Debt. The Congressional Budget Office has referred to it as an “accounting device,” which is consistent with claiming that the debt of the federal government is simply the debt held by the public, $27.4 trillion as at 29 February 2024. 

If this position is correct, then beneficiaries of the military retirement and the federal government retirement funds do not have funded pensions and are reliant solely on future federal government revenue to pay for their pensions. 

In a 2016 report on the federal old age and survivors insurance funds the Brookings Institution recommended that the assets of the funds be redistributed with 40% invested in equities. Hence by implication the Brookings Institution accepted that these funds existed and were not simply an accounting device.

This argument is beyond the scope of this note, but a cynic reviewing this might be tempted to claim that this ambiguity offers an opportunity for the authorities to engage in doublespeak. 

Media reports on the debt of the federal government regularly refer simply to the debt held by the public and ignore the current $7.1 trillion of Special Debt. Yet certain federal government publications (such as the information on pensions for older military personnel) report that there is funding in place for the various federal government-sponsored trust funds. The implication of this is that the Special Debt is real. 

It is notable that Luke Gromen, an influential commentator on the financial situation of the federal government, considers it useful to incorporate the Special Debt into his analyses of the sustainability or otherwise of the federal deficit.


Robert Lambourne is a retired business executive in the United Kingdom who consults for GATA about the Bank for International Settlements and U.S. government debt.

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