Can the Fed Gov't Afford it IF and When the Fed Res. Raises rates?

MsMorrisine

the 10 year is back to well over 2%... 2.28% even.


Can we afford 3%?

4%?


do we need to just issue 100 year bonds at 5% now and get it over with?



$15.6 Trillion in debt and climbing. It will climb much faster at 3% or 4%.


(Maybe instead of seizing gold, they can seize Apple. There is more money in that.)

secondrepublic

This is a very important question. Currently, because of super-low rates, the government is "only" paying around $200 billion/year in interest. If rates rise to let's say 5%... a normal number from a historical standpoint... five percent of $15.6 trillion is almost $800/billion a year. Currently the entire federal government only pulls in about $2.2 trillion in taxes... so this means we'd be spending almost 40% of the budget just on repaying interest on the national debt. Not gonna happen.

There is only one solution for the government -- keeping interest rates low while inflating away the debt.

RedTiger

I've asked the rhetorical question in other posts, what happens when long term rates go back to 7% which is about the long term historical average? Deep doo-doo, as one former president might put it. Bonds are not the only market that gets destroyed when that happens, stocks will likely be yielding about the same 7% at that time, and with mortgage rates sky high, real estate prices could go down another 50% from these levels.

In my mind it is a matter of when, not if rates return to more average levels. The timing of the when is a tough one, because the Fed has intervened with $2 trillion to keep interest rates low since the Lehman event in 2008, and will probably load up another few trillion in the next few years. When does the QE trick stop working? Hard to say. The Fed is already changing tactics with the Twist and is talking about even more complicated tactics. For those that think it is sure to be soon, the Japanese central bank has been playing the QE game for three decades and counting, and yet their interest rates remain among the lowest in the world. If Japan implodes, the count down starts ticking more quickly for the U.S. The wildcard is the cultural differences between the two countries, might mean the U.S. gets to go over the cliff first.

1jester

Simple. Repudiate the Federal Reserve Note debt (according to a strict interpretation of the Constitution, it doesn't pass the litmus test anyway; for those who can't understand that, let me put it more clearly: Federal Reserve Notes are unconstitutional), revoke the Fed's charter and start with a clean slate. But in concert with these actions, it will be necessary to elect sensible politicians who actually have the United States' interests at heart, not the traitors that currently occupy virtually all branches of the current government.

How else are Americans realistically going to deal with this unimaginable problem when the music stops? Are we ready to replay the actions of the French Revolution? I don't think that's necessary; we already have a legal foundation to deal with what has happened to our Republic.

jmski52

with all of the above.

I was traveling yesterday, and I happened upon an interview with a Japanese scientist/fund manager(?) who was talking about Japan's economy and prospects. While they have kept rates low for decades, their retirement funds have been devastated. If that wasn't bad enough, many retirement funds were heavily invested in Teppco which owns the Fu kushima power plants. These funds are interwoven into the Japanese financial structure and still face a worsening picture as the reactors continue to inch further towards another catastrophe, and it appears that the worst scenarios are becoming the likely scenarios.

Apparently, nobody knows what to do, they've run out of engineers due to overexposure and are recruiting new blood from SE Asia but not telling their recruits what their job is going to be when they get there. They are not able to keep enough cooling water going, and the cooling water that they can pump isn't effective. There is a likelihood of a meltdown, with a critical mass explosion(s) and total contamination of most of Japan. It's looking like more than just a bond market problem. If you're looking for a black swan - this would be it.

bluelobster

<< <i>Simple. Repudiate the Federal Reserve Note debt (according to a strict interpretation of the Constitution, it doesn't pass the litmus test anyway; for those who can't understand that, let me put it more clearly: Federal Reserve Notes are unconstitutional), revoke the Fed's charter and start with a clean slate. But in concert with these actions, it will be necessary to elect sensible politicians who actually have the United States' interests at heart, not the traitors that currently occupy virtually all branches of the current government.

How else are Americans realistically going to deal with this unimaginable problem when the music stops? Are we ready to replay the actions of the French Revolution? I don't think that's necessary; we already have a legal foundation to deal with what has happened to our Republic.

>>



Count me as one who definitely does not agree.

Even though it appears you have enthusiastic agreement with some(?), I'm curious as to what are the legal actions you propose? Even though, you say the FR, is not necessary, you imply that many if not ALL govt officials are traitors. Are we to believe that Jean-Paul Marat is alive and well in the hearts of some gold bugs? And once you repudiate the dollar how are you insuring the election of those "you" consider to be sensible?

1jester

<< <i>

<< <i>Simple. Repudiate the Federal Reserve Note debt (according to a strict interpretation of the Constitution, it doesn't pass the litmus test anyway; for those who can't understand that, let me put it more clearly: Federal Reserve Notes are unconstitutional), revoke the Fed's charter and start with a clean slate. But in concert with these actions, it will be necessary to elect sensible politicians who actually have the United States' interests at heart, not the traitors that currently occupy virtually all branches of the current government.

How else are Americans realistically going to deal with this unimaginable problem when the music stops? Are we ready to replay the actions of the French Revolution? I don't think that's necessary; we already have a legal foundation to deal with what has happened to our Republic.

>>



Count me as one who definitely does not agree.

Even though it appears you have enthusiastic agreement with some(?), I'm curious as to what are the legal actions you propose? Even though, you say the FR, is not necessary, you imply that many if not ALL govt officials are traitors. Are we to believe that Jean-Paul Marat is alive and well in the hearts of some gold bugs? And once you repudiate the dollar how are you insuring the election of those "you" consider to be sensible? >>



When did I suggest a repudiation of the US Dollar? I merely advocate (as one possible scenario, but also as the only logical and fair one) returning to US Constitutional principles (wherein, as a matter of fact, is clearly spelled out the penalty for treason) and the "real" dollar, not the FRN, which is a complete sham on the American people. Please read our Constitution (and the US Coin Act of 1792). And yes, I do advocate justice for all.

Baley

Simple

bluelobster

<< <i>

<< <i>

<< <i>Simple. Repudiate the Federal Reserve Note debt (according to a strict interpretation of the Constitution, it doesn't pass the litmus test anyway; for those who can't understand that, let me put it more clearly: Federal Reserve Notes are unconstitutional), revoke the Fed's charter and start with a clean slate. But in concert with these actions, it will be necessary to elect sensible politicians who actually have the United States' interests at heart, not the traitors that currently occupy virtually all branches of the current government.

How else are Americans realistically going to deal with this unimaginable problem when the music stops? Are we ready to replay the actions of the French Revolution? I don't think that's necessary; we already have a legal foundation to deal with what has happened to our Republic.

>>



Count me as one who definitely does not agree.

Even though it appears you have enthusiastic agreement with some(?), I'm curious as to what are the legal actions you propose? Even though, you say the FR, is not necessary, you imply that many if not ALL govt officials are traitors. Are we to believe that Jean-Paul Marat is alive and well in the hearts of some gold bugs? And once you repudiate the dollar how are you insuring the election of those "you" consider to be sensible? >>



When did I suggest a repudiation of the US Dollar? I merely advocate (as one possible scenario, but also as the only logical and fair one) returning to US Constitutional principles (wherein, as a matter of fact, is clearly spelled out the penalty for treason) and the "real" dollar, not the FRN, which is a complete sham on the American people. Please read our Constitution (and the US Coin Act of 1792). And yes, I do advocate justice for all.

>>




Ah, and justice is swift and sharp , but wouldn't history tell us, it many times finds those who would so freely mete it out.

pf70collector

Inflate or Default. Both not good at all. These seem to be the only solutions except growing the economy to such levels where tax revenue can pay off the debt, though no one seems to know how to do that in Washington. If one party has a good solution the other party will just knock it down. Party is more important than the Republic. This will end badly.

Coyn

I'm sure they can come up with something like requiring pension funds ands 401Ks (IRAs) to buy a newly created Retirement T-bill with a fixed rate of 2%. If not then you lose the tax deferred status.

Obama just signed a law overturning the first amendment, theres nothing they won't do to keep thier game going.

DrBuster

<< <i>I'm sure they can come up with something like requiring pension funds ands 401Ks (IRAs) to buy a newly created Retirement T-bill with a fixed rate of 2%. If not then you lose the tax deferred status.

Obama just signed a law overturning the first amendment, theres nothing they won't do to keep thier game going. >>



Been on vaca, what law are we talking about??

derryb

The market will eventually determine interest rates. The FED can keep them artificially low for only so long.

OPA

<< <i>Obama just signed a law overturning the first amendment, >>



Really? I believe it takes more than a presidential signature to overturn that amendment and I have my doubts that you even know what the 1st amendment covers. ( PS I'll give you a hint, you posting on this forum is one of them)

ebaytrader

<< <i>This is a very important question... >>



Maybe the single most important economic question facing us going forward.

derryb

How the FED keeps interest rates artifically low

cohodk

<< <i>How the FED keeps interest rates artifically low >>



"Foreign investors shun US debt". I'm still waiting for evidence of this.

PM bulls should be very thankful for these low rates. I don't understand why those doth protest so much.

RedTiger

<< <i>

<< <i>How the FED keeps interest rates artifically low >>



"Foreign investors shun US debt". I'm still waiting for evidence of this.

PM bulls should be very thankful for these low rates. I don't understand why those doth protest so much. >>



Low rates have benefited many markets. A huge spike up in long term U.S. Treasury rates sets in motion a series of dominoes, which includes falling stock prices, falling real estate prices due to higher mortgage rates, and probably falling metals prices because the competition from bonds becomes fiercer. Those on margin will have to pay that much more to maintain their positions and that would include the 2x and 3x leveraged bull funds. As interest rates go up, their rate of decay will nudge upwards because the premium they pay for their exotics (futures, options, options on futures) goes up with interest rates.

pf70collector

Has the Fed ever bought so much U.S. debt in the past? World War II? I fear the dollar will be in a death spiral downward. Unlike post war world II where we had a strong manufacuring base. Today we have Apple which is based on consumers buying the next apple product. Consumers will get tired of shelling out the money for the next apple product that has a 4 after it instead of a 2 for basically doing the same thing. Shelling out money for an item with a 4 year life span is not very pratical. Apple at $600 with Wall Street hyping it up to $1K. Really. Its dot.com 2K all over again. Guess all the free fed money has to go somewhere. The stock market may be up but overall trading volume is down. Think about it.

cohodk

I hear you redtiger but why should we worry about a massive increase in rates? Spain a.d Italy are in much worse shape, ha e terrible demographics, can't feed themselves and could not be energy independent, yet today are only looking at 5% rates.

The USA could handle rates much much higher than present.

You might also want to create a comparison chart showing Fed rate increases and the stock market

Being an equities guy I say, "Mr bernanke, raise rates now!!"

jmski52

How do you combat stagflation? Well, Reagan, Regan and Volker did it by lowering taxes and raising rates. This administration wants very badly to do the opposite. The main difference now is that the debt level seems to preclude any significant rise in rates.

You tell me. What's next?

cladking

<< <i>

with all of the above.

I was traveling yesterday, and I happened upon an interview with a Japanese scientist/fund manager(?) who was talking about Japan's economy and prospects. While they have kept rates low for decades, their retirement funds have been devastated. If that wasn't bad enough, many retirement funds were heavily invested in Teppco which owns the Fu kushima power plants. These funds are interwoven into the Japanese financial structure and still face a worsening picture as the reactors continue to inch further towards another catastrophe, and it appears that the worst scenarios are becoming the likely scenarios.

Apparently, nobody knows what to do, they've run out of engineers due to overexposure and are recruiting new blood from SE Asia but not telling their recruits what their job is going to be when they get there. They are not able to keep enough cooling water going, and the cooling water that they can pump isn't effective. There is a likelihood of a meltdown, with a critical mass explosion(s) and total contamination of most of Japan. It's looking like more than just a bond market problem. If you're looking for a black swan - this would be it. >>



Jeesh.

I wasn't aware of this. Why not just wait till the wind is right and blow it sky high. They lose
several hundred square miles of land forever but it's problem solved without massive death.

RedTiger

<< <i>How do you combat stagflation? Well, Reagan, Regan and Volker did it by lowering taxes and raising rates. This administration wants very badly to do the opposite. The main difference now is that the debt level seems to preclude any significant rise in rates.

You tell me. What's next? >>



War and dual currency. Repudiation of debts held by foreigners. It won't be a picnic for anyone on any side.

jmski52

from Zero Hedge - just like there would never be a housing bubble meltdown until there was,

There won't ever be a failed Treasury auction........until there is.......

MsMorrisine

<< <i>from Zero Hedge - just like there would never be a housing bubble meltdown until there was,

There won't ever be a failed Treasury auction........until there is....... >>



it's in everyone's mind's that we can grow our way out.

first, that thought has to be brought into question.

EagleEye

Spending:



Revenue (as a factor of GDP) Blue - Federal, Red - State, Green - Local:




If rates go up, that means there is a market for our debt at a higher rate. Right now, rates are low (and we are buying much of it) because of the lack of demand worldwide. I don't take it to mean our economy is that bad, but of those who buy our debt, like China and Europe. Raising rates would slow down the economy too. It is a delicate balancing act.