Election ads run all day this week. The vote is Tuesday, Nov. 3. Richard Rubin and David Luhnow of the Journal cite a count by the ad-tracking firm AdImpact. In the 2018 midterms, 140 political ads mentioned the national debt or the deficit. This year, 30 did. Debt ranks 52nd among campaign topics.
The debt didn't shrink while nobody was looking. It grew. For the year that ended Sept. 30, the debt the public holds hit 100% of the economy's yearly output, or GDP. The last time that happened was 80 years ago. The 2001 level was less than a third of today's. The deficit came in just under $2 trillion, or 6.2% of GDP. That's seven straight years above 5%. The paper calls it the longest streak in at least a century, and one with no match outside a war, a recession or an emergency. In four years the interest bill more than doubled. The government now spends more on interest than on the military.
The paper lays out what each side is promising. On the Republican side, President Trump has promised every adult a $5,000 check if his party wins the midterms. The estimated cost is $1.2 trillion. On the Democratic side, the party wants Medicaid cuts reversed, Obamacare subsidies brought back and tariffs repealed. The paper says neither party's ads mention the debt. Rep. Steny Hoyer, who's retiring after nearly 46 years in the House, put it simply. "Nobody asks me about the debt," he said. We're not picking a side here. We're reporting the arithmetic.
Why this is a bond story
The rest of the rich world is on the same road. Deficits there are projected to average 5.2% of GDP this year, up from 2.6% a decade ago, by IMF data. France has lost four prime ministers in three years over spending fights, and its bond yields jumped. Here, the Journal notes, Treasury yields recently hit 24-year highs. Rupert Harrison, a former British Treasury official now at Pimco, says the debt case only lands when it gets personal. "Turn that fiscal argument into something real," he said. Your mortgage rate is that argument.
Our read
Fixed Income, IN02. Here's the plain link. When Washington borrows about $2 trillion a year, it has to sell about $2 trillion of bonds. Buyers want a higher rate to take them all. That's one big reason, in our view, the 10-year Treasury closed Friday, Oct. 30 at 4.928%, a whisker under 5%. It's also why we keep the practice's safe money short. Treasury bills (SGOV) sit in 49 model books and floating-rate paper (USFR) in 14. Long bonds (TLT) are in 4 older books, and nothing was added. A long bond is a 20-year bet that Washington fixes this. We'd rather not make it. The Journal also repeats the date that matters most for retirement plans. On the current path, Social Security can't pay full benefits after 2032.
Where this touches your money is the bond side of your plan. Pull up your bond fund this week and find its average maturity, or duration. If it's over ten years, you're lending to the Treasury for a long time while it borrows more than it has in a century. Make that choice on purpose. The yield near 5% is the weather report. Deciding how long you lend is finding the umbrella before the clouds open. Bring the fund's fact sheet to your next review and we'll read the maturity line together.