Monday, February 20, 2012

Estimating the Factor Cost of Money (1)

If you Google interest cost or interest cost data or stuff like that, it's pretty easy to find how to figure the cost of a loan, and pretty easy to find info on everybody's favorite fall guy, the Federal government.

But it is hard to find info on interest costs in the private sector.

So I had a thought: Why don't I use the total interest cost on government debt to figure an "average" interest rate for government debt each year, and then use that number as a proxy for the average interest rate of private sector debt.

I don't know how totally valid this approach might be. But it is representative. It will give me something to look at -- assuming I can find the relevant data for the Federal government!


Got it. The OMB site has a Historical Tables link with a good handful of Excel files available for download.

Table 6.1 shows the composition of Federal outlays for 1940–2016, including Net Interest. Table 7.1 shows Federal debt at the end of the year for the same period. I took the ratio to get an average interest rate for the whole Federal debt.

It's got the same 1982 peak that you might see in the Federal Funds rate. No surprise there, I guess.

See that odd short bar in the middle, around 1977? That's an accounting adjustment labeled "TQ" (Third Quarter) in the file. (It's in both tables.) If I use these numbers as a proxy for the average private-sector interest rate, I'm just gonna delete the TQ line.

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