Quote:
Originally Posted by Wayne at Pelican Parts
It's quite simple - the bond vigilantes will come out and force the US to pay higher interest rates - much like we have seen in Europe with Greece and the UK. The tide will turn, and it will turn quickly when the market sours. In the early 1980s, the rate on Treasuries bounced almost four points within a period of about six months or so - I predict that we will see a similar bounce in the very near future.
-Wayne
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Ohhh Wayne you make it so easy...
This afternoons missive is about US government INTEREST PAYMENTS.
As I have said many times...The historic highs on 30 year T BIlls was reached in the early 1980's at 16%, that is spelled capital S, capital I capital X, capital T, capital E, capital E, capital N...S..I...X...T..E...E...N...PERCENT. What that means for U if those rates are once again seen is that that 2.125T USD will go to INTEREST PAYMENTS alone of the 2.5T USD tax revenues collected. Thate leaves 350B USD to fund the REST of the US government....Currently the DOD spends 687B USD...What does this SPELL..What does this SPELL....
And JUST for HUGH...this WAS going to be the title of this afternoons little missive...currently by 2018, if we see no dramatic increase in Interest rates..the US will be paying $1,000,000,000,000.00 in Interest on the debt. That is about $3000.00 for every man woman and child in America...So Hugh since you are an EMPTY NESTER..you and you wife will have to cough up $6000.00 a year every year above and beyond the funding of the other US govt operations...
Family of 4...$12,000.00 RIGHT OFF THE TOP.
This will suck the American economy DRY and there will be NO ECONOMIC GROWTH..and NO JOB CREATION.
What this does spell is A TRANSFER OF WEALTH TO THE T BILL HOLDERS..
Now to Wayne...Everything I have said for the past 2 years is that one day we will wake up and the those Bond Vigilantes will be demanding HIGHER INTEREST RATES...as the risk to reward ratio grows ever higher..as seen above the interest payments will put a stake through the heart of the American economy.
Perhaps it will be a report, perhaps it will be some event, or perhaps it will start with the loss of confidence in shall we say a state like CA and there will be a run on those Muni's...which would snowball...
In other words the more deficits and debt the easier it is for a minor event to trigger a crisis
Now Wayne you very casually say that a rise of say 4% on the Long Bond is possible as a way to curb deficit spending...
But exactly what will that do to the already fragile Economy? Do I hear you say send it into a almost unstopable tail spin that will make the Great Depression look like a walk in the park?
The countervailing pressure at the moment is the Fed and Treasury are DOING EVERYTHING POSSIBLE to keep liquidity in the system and interest rates low. At the moment Investors are FLOCKING (569B since early 2009) to put their money into T Bills as an ON THE BEACH STRATEDGY. They will gladly take a negative yield for the safety of their principle. However if interest rates should start to move higher that principle could be WIPED OUT...and that sentiment of fear is where a RUN ON THE BOND MARKET OCCURS and a BURSTING OF THE BUBBLE TAKES PLACE...as everyone wants out the door at the same time.
So welcome to he11 Mr Wayne...where EVERY SOLUTION has an unintended consequence or blow back and if you will a Catch 22 situation.