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As the world’s largest debtor, without doubt the biggest beneficiary of the low interest rate environment of the past 10 or so years has been the U.S. federal government.

According to the November 2017 Government Accountability Office Financial Audit and Schedule of Federal Debts, by September 2017 the federal government had racked up a cumulative national debt of $20.23 trillion.

Of this $20 trillion in debt, about $14.6 trillion, or 73 percent, is classified as held by the public, which means it is in the form of U.S. Treasury securities owned by investors, financial institutions and foreign governments.

The remaining $5.5 trillion or so is what is considered “intergovernmental” debt which means the government owes the money to itself, primarily as a funding source for various future promises and benefit programs such as Social Security and Medicare.

It is in the publicly owned tranche of debt that the government has realized the primary benefits from low interest rates. According to the GAO report, after nearly a decade of low rates the average interest rate paid on this debt is just a bit over 2 percent. This is obviously a very good deal for the government, and this good deal has enabled the government to continue spending and borrowing. In 2017, while the government did pay a whopping $296 billion in interest on the publicly held debt, this amounted only to 7 percent of total federal spending.

This may however, be about to change, and it will be important to all of us to understand just what this could mean to us as Americans and investors.

Also outlined in the GAO report is that 59 percent of the securities (bonds and notes) comprising the government’s debt portfolio will mature in the next four years. These maturities will have to refinanced, just as interest rates begin to rise in earnest across the board. The result could be very expensive.

Just doing some very simplified math for discussion purposes, if interest rates rise as expected, and as is being forecast by the Federal Reserve, it would be reasonable to project rates at about 1 percent higher across the spectrum over the next four years. If this were to occur, it would increase the interest cost on the re-financing debt by roughly $90 billion.

This is $90 billion that cannot be spent on defense, social programs, roads or parks. Even in government terms, $90 billion is real money, and it is likely to be felt throughout American life.

Fortunately, the Treasury Department seems to be aware of this risk and has been working to extend maturities on its debt portfolio. In January the Treasury auctioned (issued) a record offering of 30 year Treasury bonds at a yield of under 3 percent. It doesn’t take a PhD in economics to figure out if the world wants to lend money for 30 years at under 3 percent, the U.S. government should probably take it.

We are, however, approaching the end of an era. Over the past nine years the government’s debt level has exploded, even as interest rates have trended ever lower. With the interest rate trend appearing to finally be reversing, having this unfathomable level of debt on the books moves the US into some uncharted territory and potentially stormy seas.

Opinions are solely the writer's. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Member FINRA and SIPC. Contact Marc at