Debt Spending to Soar, Due to Rising Interest Costs
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What is the main topic discussed in this episode?
With your Money Briefing, I'm Charlie Turner in New York for The Wall Street Journal. The U.S. is on track to spend more on its debt than on defense. The reason is that interest costs on the debt are rising rapidly. We'll have more on this in a moment. First, here are some money headlines.
What headlines set the stage for rising government interest costs?
It looks like we can expect more volatility after Monday's stock market rout. The Dow tumbled more than 600 points and the Nasdaq fell 2.8 percent. It came after an Apple supplier issued a bleak forecast, raising concerns about iPhone demand. But The Wall Street Journal's Mike Worsthorn says there is a silver lining for investors.
It doesn't really shake investors' overall conviction that, you know, when you're looking around the world, equities here in the U.S. still look really attractive overall. So investors are tempering all that volatility with just sort of where else do you put your money at this point.
Companies could automatically start transferring small retirement accounts belonging to employees who change jobs to the 401k plans of their new employers. That's according to new guidance from regulators. The move is the latest effort to reduce the premature flow of money, potentially billions of dollars, out of 401k-style plans. A pair of recent Labor Department actions could give Retirement Clearinghouse LLC of Charlotte, North Carolina, a green light to automatically transfer small balances of $5,000 or less to a new employer's 401k plan provided the employee doesn't opt out. The Wall Street Journal says the biggest biotech IPO on record is coming soon, with a whopping $7 billion price tag.
Moderna Therapeutics, one of the most closely watched biotechs, filed a registration statement with the Securities and Exchange Commission last week to raise up to $500 million. Moderna is valued at about $7 billion based on its last fundraising. The offering is likely to take place before the end of the year.
How did recent stock market moves and tech forecasts affect investor confidence?
Moderna's high price is driven by its promising approach to developing medicines based on custom built strands of a cellular component known as messenger RNA. The treatments are designed to trigger cells to make proteins that will prevent or fight disease. In theory, this technology could be used to create dozens of drugs and vaccines to fight or prevent everything from cancer to the Zika virus to heart disease. Still ahead, spending on the federal debt is expected to skyrocket because of rising interest costs. This is your Money Briefing from the Wall Street Journal.
What's the most expensive item on the government's spending budget? Before too long, it could be the debt held by the nation's taxpayers. Uncle Sam is projected to spend more on debt than on national defense, Medicaid, or non-defense discretionary programs. Financing our growing debt hasn't really been a problem over the past few years, but it looks like that is changing. Joining us to explain this is Wall Street Journal reporter Kate Davidson. Kate, I am under the impression that as large as the debt has grown, the biggest problem is interest on the debt. Is that right?
Yes. Well, interest on the debt is the fastest growing part of the federal budget. Thinking about it more broadly, some of the bigger drivers of the debt do include programs like Medicaid and Social Security, in part because the population is growing older. Those baby boomers are retiring. They are drawing more from those programs, and those programs are getting more expensive. But what we're seeing right now, the costs that are going up the fastest are these interest costs.
By how much have our interest costs grown?
Well, over the past decade or so, the costs have been pretty manageable, and that's primarily because the Federal Reserve has kept interest rates near zero after the recession. A few years ago, they started very slowly raising them, and they're projected to continue raising them through next year. We had a few rate increases in 2018. We expect one more perhaps in December, and then three or four next year. And as that happens, of course, interest rates are going up.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:21
2
What headlines set the stage for rising government interest costs?
0:21–1:54
3
How did recent stock market moves and tech forecasts affect investor confidence?
1:54–4:33
4
What regulatory change could reduce rollovers of small 401(k) accounts?
4:33–7:44
5
Why is Moderna's IPO getting attention and how big could it be?
7:44–8:23
Speakers
3 identifiedMore from WSJ Your Money Briefing
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