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Fed adds $50 Billion to the deficit and nobody blinks.
Coinstartled
Posts: 10,135 ✭✭✭✭✭
Do the math. 25 basis point increase in the fed funds rate translates to an extra $50B in US interest cost on the national debt. ($21,000,000,000,000 times .25
Sure you can talk refunding and certainly it takes a bit of time for the rate increases to to work its way through the longer term debt but the gambit of snugging up rates is risky.
Keep stacking gold!
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the national debt is based off treasury issued debt. that trades on the fixed income markets. you can look at the charts on wsj -> http://quotes.wsj.com/bond/BX/TMUBMUSD30Y?mod=mdc_bnd_dtabnk
the 30 year had a bit of sell the news or so.
if you want to blame something for higher rates, blame the improving economic numbers.
But that debt refunds on a regular basis and the longer term debt will reflect the 3 quarter point increases in a bit over a year.
In my opinion the fed rate should have never dipped below 2%. 3-4% is more realistic. Problem lies with the unabated debt accrued. It cannot sustain a 5% short term rate, let alone 10%.
new debt issuance is by bidding and they place near fixed income market rates.
Give Me Liberty or Give Me Debt
my feelings exactly
debt is sold into the bond markets.
fed funds rate is what banks charge for overnight loans. perhaps you should read up on what the fed funds rate is all about.
Fed funds rate (what banks charge other banks overnight to help them maintain minimum reserve requirements) is the only rate that the FED directly controls (via the FOMC). However it is the benchmark for all other US loan rates and causes them to go up and down accordingly. The FED's interest rate policy directly affects consumer interest rates nationwide.
I suspect these overnight inter bank loans most likely occur only on paper with no money physically being transferred except of course the interest payment.
Give Me Liberty or Give Me Debt
the treasury is not a bank, and the discussion of long term borrowing is far from overnight.
bond yields were moving up well before any rate hike due to improving economic numbers. that is because the market is by far greatly influenced by the economic numbers. furthermore, the the treasury sells debt it sells into a market that is much more by far influenced by supply and demand based upon macro economic forces rather than an overnight rate banks charge each other.
It's knowledge demonstrated here keeps the 1% being the 1%.
Knowledge is the enemy of fear
""bond yields were moving up well before any rate hike due to improving economic num> @MsMorrisine said:
I have studied the subject extensively. The point of my OP was not so much the immediate daily reaction of the bond market to the fed funds move. It was more a warning regarding the cost of supporting a twenty trillion dollar debt. Whether the short term rate is 0% or 2%, the higher cost of debt servicing can probably be absorbed.
Unfortunately the pattern of reckless deficit spending over the last 36 years has created the seeds significant inflation which in an effort to control it, could drive the short rate to low double digits. That may or may not happen, but trust me, if the short term rate goes to 10%, the ten and 30 will quickly follow. Ten percent interest of $20T is $2T a year. A budget buster to even the most sloppy and obtuse bureaucrat.
this is a confusion of cause and effect.
the best thing to point out to demonstrate this is:
the fed hikes rates to slow the economy. when the economy is doing well, treasury yields are rising.
it's not the other way around.
above
from the Dec 2015 hike, 30year yields moved down about 0.80% in the face of a 0.25% hike. Preceeding the Dec 2015 hike, 30 year yields moved up about 1.00% before the fed hiked. Between the two, yields were more or less flat.
this is due to economic expectations and fixed income supply and demand, not rate hikes which would actually slow growth and reduce long-term rates, not increase them.
the fed hikes to slow the economy, a slowing economy means lower inflation, lower inflation expectations lowers long term yields.
Do you really believe that any rate on the curve over the last 8 years has not been distorted heavily by an out of control Fed?
US Treasury finance, debt obligations, the bond markets and the US Economy are like the Exxon Valdez. Nothing affects them, until it does. It's also really hard for a drunk captain to turn the ship around, if he even wanted to.
I agree with cohodk on at least one thing - maintaining personal responsibility yields a much better advantage in the long run than not maintaining it.
I knew it would happen.
FED is not "out of control". Markets determine rates.
Knowledge is the enemy of fear
It's like PMs. Markets determine the added premium (or with interest rates, consumer rates) over the FOMC determined spot price (fed funds rate). Markets only get to "add to" what market manipulators set as the base.
Give Me Liberty or Give Me Debt
Remember the housing bubble?
People incorrectly blame 1 person, Greenspan, for keeping rates too low. Anyway, to slow the economy and decrease those bond yields they began tightening by raising rates.
From 5.26% and a hike, why didn't yields keep going up? That bubble began to burst. The economy was the driving factor.
Then things began to crumble. Did the lowering of Fed Funds cause it to go into the can? No. That was happening already, and this is evidenced in the lowering 30 year yields. The Feds were trying to raise the economy, and thus, raise 30 year yields by cutting. Who out there equated those rate cuts on the right of the above chart to the decline in 30 year yields. That decline happened and kept happening despite Fed attempts to have easy money. The struggle continued to the point the 30 year yield hit a low of around 2.5%, Fed Funds rates were effectively 0.00% and we had QE. Yet how long did it take for yields to go back up? Why did they go back up. Everyone was waiting for the economy. The better outlook for the economy started to firm yields and then the Fed started policy normalization via ending QE. Eventually the economic outlook improved to the point yields rose and the Feds raised the Fed Funds rate.
Government borrowing costs will rise because of the economy and inflation. The Fed Funds rate hikes are a response to an inflationary economy in an attempt to keep inflation, and thus yields down. The Fed Funds rate increases do not cause inflation, but are an attempt to fight it.
edit: to emphasize government borrowing costs will rise because of the economy and inflation, not the Fed Funds increasing.
borrowing costs rise because interest rates rise. Interest rates are THE bulk of borrowing costs. The economy and inflation react to interest rates, it's not the other way around. This is why the FED uses them to attempt to divert the economy and inflation in a chosen direction. Don't be fooled into believing that there is no manipulation, even with interest rates. Manipulation the only reason they get changed.
Give Me Liberty or Give Me Debt
Nope. Markets control "spot"...just as in PMs. The FED reacts to the market just as physical reacts to futures.
Knowledge is the enemy of fear
Yes, markets set all prices, but it is important to understand who the market maker is. FOMC is the market maker for both the feds fund interest rate and PM futures (spot). To implement what they think is best for the rest of us they
(1) FACT - use the FED to publicly adjust (manipulate) a fed funds rate that has a domino effect on consumer rates, and
(2) OPINION - use their bullion broker agents to covertly impact PM spot prices in the paper futures market.
It's easy to see that interest rates are in fact manipulated, why is so hard to understand that other markets can be and are mostly likely manipulated?
The FED has to constantly react to the markets reaction (production, inflation) of the impact earlier FED decisions had on the market. The FED would not have to react to markets if they would not interfere in them. Doing so requires them to be a player. Players control markets. Major players are market makers.
Give Me Liberty or Give Me Debt
Fact---The FED reacts to conditions set forth and demanded by the market. All you have to do is graph market rates vs FED actions and you can easily see which comes first.
OPINION---you think everything is controlled or manipulated by some covert entity.
Knowledge is the enemy of fear
If the FED does anything at all its that it smooths out regional distortions. Rates are based on demand for money. That demand is certainly much higher in San Jose or Jacksonville, than in Buffalo or Chicago. This can distort regional economies which helps some areas bubble, while others flounder.
Knowledge is the enemy of fear
which comes first the economy changing or the fed changing?
when the fed hikes, borrowing costs do not necessarily immediately go up. look at the flatness between the two recent hikes. this is misassigning cause and effect. the effect of the economy soaring is higher fixed income rates and the fed responds to the soaring economy and the inflation outlook (looming higher inflation.... higher borrowing costs) by increasing the fed funds rate to slow things down.
Yes raising Fed Funds and thus borrowing costs can, but not necessarily (think home loans tied to the 10 year), go up for the rest of us, but on the yield curve of Treasury debt, there are so many players in that market which are not banks -- hedge funds, mutual funds, investment banks, retail, and of course banks which are used in a banks, lettuce and tomato sandwich. This yield curve reflects what the government has to pay. Due to the number of players in the market that is even more of an indication that the Fed Funds rate has less to do with government borrowing costs than what the market participants (quite a few classes are not banks) see in the economic future and reflect via their buys and sell in the Treasury market.
(excuse me for previously equating the fixed income market with the Treasury market. Fixed also can include corp. debt and that is not the topic)
distorted? As you wish.
Equating lowering the Fed funds rate to lowering the government borrowing cost isn't what was happening. Their rampant manipulation in the Treasury market by lowering Fed Funds to essentially 0% and then doing QE, and to a lesser extent the MBS markets, was to manipulate the economy up, which would in turn raise Treasury yields in the immediate term and into the future (such as when the government has to roll even more debt.)
The heavy impact of the housing bubble caused the crash in yields and not the lowering of the Fed Funds rates, which were meant to counteract that crash in yields, not add to it.
fact: the FED creates changing market conditions in its quest to manipulate the economy. Unfortunately its next action is usually a reaction to correct its last action. Do a little research on their "dual mandate" and the tools they have at their disposal to implement change.
opinion: everything is controlled or manipulated in financial matters. Most of it is done openly. The fact that it is accepted as the norm does not diminish the fact that it occurs.
Give Me Liberty or Give Me Debt
You are greatly mistaken if you think that the Fed doesn't control rates. It took a Fed Funds Rate around 14% and an illegal
"no buy" action by the CFTC to bring down the Hunt Brothers in 1980, but it happened and if that's not control over rates, then nothing ever will be.
I knew it would happen.
JM, some people think the words "control" and "manipulate" belong strictly to conspiracy theory. They do not realize they are the norm.
Give Me Liberty or Give Me Debt
"Fed adds $50 Billion to the deficit and nobody blinks."
No big deal,,,,,,,, Trump saved $738 MILLION on the new F-35 Fighter Jet.
http://dailycaller.com/2017/02/03/new-f-35-contract-shows-exactly-how-much-trump-saved-taxpayers/
It's good to have the Glicker back. I think
Mark
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
I guess im mistaken then. HAHAHA
You will no longer be mistaken when you realize the markets are bigger and more powerful than everything and everyone.
Knowledge is the enemy of fear
tell that to the baker in Venezuela
You will no longer be mistaken when you realize that markets are what governments and central banks want them to be. lol.
Give Me Liberty or Give Me Debt
And ye shall see that the markets prevail. Always will.
You think if the bakers had gold they could make more bread?
Knowledge is the enemy of fear
Not just mistaken. Greatly mistaken. And so as not to be misunderstood, I never said that the markets wouldn't prevail in the long run. They will......and that's the reason that I buy PMs.
I knew it would happen.
....only if they kneaded the dough.
Poor choice of asset to own. It's fun and pretty, but an also ran.
Knowledge is the enemy of fear
Futures markets only control a small portion of PMs. The larger picture are the otc derivatives. In silver for example, that effect is 7X larger than the US/Comex futures market. Noted this past quarter than JPM & Citi (who control 100% of US bank reported otc silver derivs) increased their positions by 40%....from $31.9 BILL to $43.8 BILL....the highest quarter ever reported by far....at least per their graph 12 on page 31/47. Wonder what they have cooking?
I guess you could call it a "market" when only 2 banks control ALL of the US silver derivative's market. All the other banks report $0. Not much different for otc interest rate swaps where 4-5 banks control over 90% of the US market....or $133 TRILL worth.
https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/dq316.pdf
Anyone read the Big Short???...
I was just thinking that houses, condos, apartments and all real estate have exploded upwards in price since all dem deravataves blew up...
Poor choice of asset to own. It's fun and pretty, but an also ran.
Poor choice of asset to own? I thought it was good to buy low. Are you saying that it's a better choice to own stocks or real estate after the runup they've both had? It seems to me that the amount of leverage being applied in almost all of the markets is nothing but asking for trouble.
I'm glad I've stepped aside, as far aside as I can possibly have stepped, and will continue to do so. Yup, I'm continually pulling assets out of the system and putting it into non-productive rocks. Intentionally. That's what deflation is.
I knew it would happen.
I'm saying that gold has historically underperformed almost every asset class. And that in a crisis it usually does not live up to its promise of insurance and protection and liquidity.
It is also prone to long cycles which can cause an investor to seriously fall behind his peers. It's ok to hold some as an alternative or counter cyclical asset, but do not hold it in high reverence or with high expectations.
Eventually excessive debt will cause serious economic problems, but that time is quite far in the distance.
Regarding gold being low....it is? You guys complain that stocks are too high yet fail to know Its also at the same relative valuation to the sp500 as it was in 2007. So think about that...over the last decade gold has performed in line with the price of the sp500 (but well underperformed when dividends are added in).
Knowledge is the enemy of fear
"""I'm saying that gold has historically underperformed almost every asset class. And that in a crisis it usually does not live up to its promise of insurance and protection and liquidity."""
Unless one is fleeing a Nazi regime...
Hey Baley, what is that called when the conversation always reverts to Hitler?
Here we go....
Knowledge is the enemy of fear
I didn't mention Hitler, you did. Fact is, relatives of mine escaped from occupied Poland and the diamonds and gold that they carried assured passage out of that hideous cesspool.
Care to make light of the insurance aspect of precious metals, Cohodk, enjoy yourself. Hopefully the historic fabric of society remains intact for all of our lifetimes. If problems arise as they have in nations like Brazil, offer a merchant a chart or two, he will gladly trade you a side of beef.
And that in a crisis it usually does not live up to its promise of insurance and protection and liquidity.
I'd be interested to know when gold hasn't lived up to its promise of insurance and protection and liquidity.
I hear that Venezuela isn't doing so good, and not many would've predicted it a mere 15 years ago. Greece will be another case in point. Spain and Italy may follow. And then, there's China if their economy takes a dive.
I knew it would happen.
You wouldn't have predicted problems on Venezuela 15 years ago? That was an easy one.
And as far as insurance, it performed poorly vs other forms of insurance.
Yoy guys are so fearful. Oh well.
Knowledge is the enemy of fear
Welcome back Glicker.
Knowledge is the enemy of fear
I guess you and Irving Fisher don't agree
I don't agree with most Keynesians. I do aree with the Austrian school of thought that government should keep its hands out of the markets.
Give Me Liberty or Give Me Debt
Interest rate manipulation was well-documented just a few years ago during the financial crisis of 2008, was it not? It involved LIBOR rates, as I recall.
I'd say that is pretty conclusive and fairly significant when it comes to manipulation.
It for sure ain't no conspiracy theory.
Maybe instead of saying that the Fed controls interest rates, a more accurate statement would be that the banking cartel manipulates them.
cohodk, do you remember the LIBOR scandal?
I knew it would happen.