Debt to Service?

KUCH

HYPERINFLATION takes place ONLY when there is no debt to service.

Not sure what "debt to service" means? Is it the interest on our debt, therefore if interest starts to get out of hand only then can hyperinflation hit?

Baley

I have a mortgage on my home; I've been anticipating this promised hyperinflation so I can sell a couple ounces of gold (or work a couple of weeks) and pay it off with a wheelbarrow full of cash, but so far that hasn't happened yet.

derryb

<< <i>I have a mortgage on my home; I've been anticipating this promised hyperinflation so I can sell a couple ounces of gold (or work a couple of weeks) and pay it off with a wheelbarrow full of cash, but so far that hasn't happened yet. >>


start saving for a bigger wheelbarrow.

Baley

I've got a full sized truck and access to a big rig, and my gold ready to redeem for thousandS per ounce.

how long must I wait? Let me go to a doom and gloom blog and get a prediction.

I will use some of the advertisements on the blog page to buy some more gold for Hyperinflation!!

Baley

Wait! why do those smart guys want to sell me THEIR gold?

oh, they're making money flipping it to blog readers?

jmski52

"Servicing the debt" refers to the re-financing and "rolling over" of the maturing debt instruments as they come due.

So, if the gov needs $10 billion or so, and they have $40 billion of principal plus $5 billion in interest coming due, they will issue $55 billion in new debt - $45 billion to pay off the principal & interest, and $10 billion more for "current expenses".

The problem is that the spending continues to increase, but so does the principal & interest. Normally, a higher rate of interest is paid for longer term Treasuries because they have a higher risk of significant changes taking place before they mature.

The imbalance between spending and tax revenue has become so great that nobody even wants longterm Treasuries now. Thus, most of the US financing is now being done with intermediate and short term paper. This also presents a problem because they pay a lower rate, and they have to be rolled over more often, making the government's financial planning more difficult.

Remember when balloon payment mortgages were popular? They were popular because nobody anticipated the day when interest rates would rise, causing the balloon payments to skyrocket. Well, the government has a giant balloon mortgage that is being issued at low current rates, but nobody is interested in buying low rate paper.

And because more and more paper is being issued to cover the rising expenses & interest payments caused by Congress's overspending habit and interest on previous debt from previous overspending, that paper is being discounted in the real market. When the paper is discounted, it implies higher interest rates. And higher interest rates will cause that giant government balloon mortgage to default.

Not to mention, that the higher rates will hurt every single entity or person who bought those low rate Treasuries.