July 14, 2026
How the Fed is Screwing Future Generations
Timothy Birdnow
Since his election Donald Trump has been pushing the Federal Reserve to cut interest rates and Jerome Powell had refused to do so. It seems unlikely to me that the new Fed chair will either as he is another Keynsian and an inflation hawk and Keynsians believe low interest rates will "overheat" the economy and drive up prices (there is no historical evidence for this but it's what they believe.)
Low interest rates thus have that benefit - they stimulate economic growth, which gives everyone more money. That includes the Federal government.
Here is a story about how this is killing the U.S. in terms of being able to control the budget deficit; higher interest rates make it much harder to refinance the bonds that government generally relies on, and also makes them more expensive to pay back. As a result we are seeing rising deficits and the only option is to cut spending - something politically difficult if nigh unto impossible in the current climate.
From the article:
The most recent monthly budget review put hard figures on the strain. Net interest on the public debt has reached $857 billion this fiscal year, or about $23.8 billion every week, according to the CBO. That figure is roughly $100 billion, or 13%, higher than the interest paid in the same stretch of 2025, the result of a bigger debt load and higher long-term rates, the CBO added. Most of the federal budget can be debated, trimmed, or delayed. Interest cannot. It is a legal obligation paid before almost anything else, which is why its growth crowds out the very spending lawmakers argue about. Here is the part that reframes the whole federal budget. According to the CBO's July budget review: Net interest so far in fiscal 2026 has reached $857 billion. That is about $20 billion more than the combined budgets of the Defense, Commerce, Homeland Security, and Education departments, plus the Environmental Protection Agency, the Small Business Administration, and pandemic-era refundable credits. Social Security outlays rose $62 billion, or 5%, on higher benefits and more beneficiaries. Medicare outlays rose $58 billion, or 8%, on higher enrollment and payment rates. Medicaid outlays rose $49 billion, or 10%, on rising cost per enrollee. When I lined the interest tab up against those agency budgets, one thing stood out. The single fastest-growing line in the federal budget buys nothing new at all. It is pure carrying cost on decisions already made.
So we are dumping ever-increasing debt on our children just because the Federal Reserve refuses to cut interest rates.
We get absolutely nothing for it, zip, zero, nada, the null set. We just are paying more for money because the Federal Reserve tells us we have to.
Posted by: Timothy Birdnow at
09:21 AM
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