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US Budget Projected Interest Rate Sensitivity Analysis: Quantifying The US Default Buffer

Tyler Durden's picture


It has long been discussed, both on Zero Hedge and elsewhere, that the massive budget deficit over the next 10 years will have to be funded with an unprecedented amount of new Treasury issuance. Various estimates project that absent a dramatic increase in yields, especially in the mid and longer dated side of the curve, there will simply not be enough demand for treasuries to fund the budget shortfalls just in the upcoming year (let alone the next ten). Furthermore, it is known that governmental estimates put early to mid 2011 total US debt estimates in the $14 trillion ballpark, courtesy of the just signed into law debt ceiling raise to $14.3 trillion. Lastly, the Treasury has made it well known that it intends to push debt issuance away from Bills and into Bonds and Notes, with the goal of increasing the average maturity of new debt to 5-6 years, which also would inevitably increase the average cost of Treasury borrowings as existing debt, of which 40% matures in under a year, has to be rolled into longer-dated debt. We present a recent monthly analysis of core Treasury receipts and outlays, highlighting the minor role that interest payments play currently. Yet should there be a dramatic or even gradual increase in rates, the monthly cost of funding of the ever increasing debt burden will soon become unbearable. A black swan scenario, which introduces an average interest rate reversion to those dark early 1980's days, when USTs carried interest of 10% and over, will see a 424% increase in monthly interest expenditures, which will push the annual interest expense as a percentage of core Treasury Deposits from the current 10% to nearly 50%, plunging America into a debt funding spiral.

First, we present monthly core treasury receipts and outlays. It should come as no surprise that over the past 18 months the Treasury has seen a net inflow based on core items just 3 times. For the purposes of this analysis we define "core" as Withheld Income and Employment Taxes and Corporate Income Taxes as the main UST receipt items, and Defense Vendor Payments, Education Department Programs, MedicAid and Medicare, Social Security Benefits, Unemployment Insurance Benefits and Interest on Treasury Securities as the main UST outlays. The chart below summarizes the progression of the composition of these core items since October 2008. We have yet to see a net inflow month since March 2009, primarily due to still collapsing tax receipts.

As can be seen on the chart above, the light-green shaded area, or the Interest paid on Treasury Securities, has been a minor portion of total UST outlays. The reason for this is the record low interest rate on Treasury Bills (we have experienced 4-week Bill auctions pricing at 0.000% on many occasions over the past several months), which comprise nearly half of all US marketable debt, the portion of debt which sees actual interest outlays instead of just intragovernmental cash flows, which is the case when observing the $4.5 trillion in various Trust Funds and Intragovernmental Holdings on the UST's books.

Focusing on interest payments, it becomes obvious that even as debt has hit all time record highs, the blended rate on LTM interest outflows has hit record lows. The chart below demonstrates the actual LTM cash interest paid over the past 28 months. As the trendline indicates, the prevailing interest payments have been declining!

Why is this perplexing? Because as the chart below highlights, the marketable debt holdings of the Treasury have been surging without pause to a January level of $7.8 trillion from $6.3 trillion in October 2008: a $1.5 trillion increase in marketable debt holdings in a little over a year. Yet, when calculating interest payment outlays on an LTM basis, and backing into what the implied interest rate on the marketable debt is, one sees the paradox: the as calculated interest rate on the surging debtload has declined from over 2.6% in 2008 to 2.2% presently.

The primary reason for this: the stable yields on the Treasury curve over the past year courtesy of the Fed purchasing not only $300 billion of Treasuries but also $1.4 trillion in MBS and Agency securities, which has kept the fixed income market calm since Quantitative Easing was introduced. Furthermore, the record curve steepness means that the Treasury is paying virtually no interest on 40% of its holdings. This spread divergence can be seen on the following FRB Atlanta chart:

So as we enter the stratosphere of debt holdings over the next 12 months and as we approach the $9 trillion marketable debt threshold by early 2011, what do rate assumptions tell us?

Well, if all is fine and good, and the Fed continues to monetize securities (USTs., MBS, etc.) past March, and over the next 12 months, there will be a constant bid under the "low-risk" Fixed Income complex. This means that the current blended rate of 2.2% will probably persist. Yet what happens if there is an interest flare event? What happens if not only Morgan Stanley is right and 10 years hit 5.5% (with 30 year MBS hitting 7.5%), but a feedback loop takes rates much, much higher, to those anathema days of Paul Volcker, when getting a loan below 10% was considered luck?

We present a table summarizing the probable outcomes below.

We believe the "Low" case is unrealistic as there is no way that an incremental $2 trillion in UST issuance will not move rates higher. Therefore we believe the Medium case is really the realistic downside rate case. In that case, the average monthly interest payment will increase from $14.3 billion to $24 billion: a 67% increase. It will also represent 16% of total Treasury receipts, compared to the current sub 10%. This is 6% that could be going to education, healthcare, defense or many other "core" programs.

Yet the scenarios that trouble us are the "High" and "Catastrophe" a/k/a Black Swan, cases. If MS is correct and 10 rates reach 5.5%, if the curve flattens, and if the UST manages to extend the average maturity well into the 5-10 year bracket, the 5% interest rate scenario is all too realistic. In this case, Interest payment will grow to an alarming 25% of all monthly receipts, while the average monthly interest outflow will reach $38 billion, a 162% increase.

Finally, if the low probability "Catastrophe" Projection Case comes through, Japan, here we come. Should prevailing Treasury rates somehow hit 10%, the average monthly interest outlay will reach $75 billion, a 400%+ increase from current outflows, and the Annual Interest expense as a % of LTM Core UST receipts will hit a stunning 50%! This means that the Treasury will spend 50% of all tax receipts merely to cover interest expense. And this assumes that the Trust Funds on the UST's balance sheet are not converted into actual outflow generating securities (more on this topic in a later post).

A full two-dimensional sensitivity analysis also takes into consideration the only real natural source of cash for the Treasury (aside from financings): tax receipts, both individual and corporate. We have demonstrated previously the dramatic deterioration in Treasury tax withholdings. The continued persistence of this trend is the single biggest nightmare for the Administration, as one can only finance budget shortfalls for so long, as tax receipts decline. The current combined LTM Treasury tax receipts (gross, not net of refunds) amount to $1.8 trillion. Should this number decline further, due to the administration's heavy handed approach in appeasing the electorate at the expense of the relevant tax payers (i.e, the richest 10% of the population which pays the bulk of the nation's taxes), and should increasing numbers of US taxpayers flee to overseas tax havens, there is legitimate case that should interest rates skyrocket, then the US Treasury could see 100%+ of all tax revenues going simply to cover interest expense. As anyone remotely familiar with economics or finance is well aware, this would be the end for America. In other words, we currently have a buffer of $400 billion in tax receipts declines, and about 10% in interest rate increases before America is officially bankrupt.

While the realistic outcome over the next 12 months will likely be between the Medium and the High cases, it implies that ever more tax dollars will have to be used simply to cover interest payments to both domestic and foreign creditors. And should the liquidity and funding crisis in Europe escalate, and the hatchling Black Swan migrate across the pond, causing a spike in Treasury Interest Rates, then what pundits lament about Japan's debt spiral will promptly be forgotten, as it becomes an all too real phenomenon not across the Pacific but here in our own country.


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Sat, 02/13/2010 - 18:22 | Link to Comment Anonymous
Sat, 02/13/2010 - 18:26 | Link to Comment NoBull1994
NoBull1994's picture

Presently, 25% of my portfolio is in the TBF.  If I had bigger nuts, and fully understood the ETF, would be 100%.

Sat, 02/13/2010 - 18:49 | Link to Comment Shiznit Diggity
Shiznit Diggity's picture

You're betting against Hugh Hendry. Do you feel lucky?

Sat, 02/13/2010 - 18:39 | Link to Comment BlackBeard
BlackBeard's picture

I'll have the black swan please.  Plum sauce on the side.

Sat, 02/13/2010 - 19:38 | Link to Comment IKEA Is Swedish
IKEA Is Swedish's picture

And a cheap single malt scotch to wash it down.

Sun, 02/14/2010 - 16:13 | Link to Comment perchprism
perchprism's picture


Yesterday I added 12 bottles of Glenfidditch to my bugout stash under the house. 

Sun, 02/14/2010 - 17:38 | Link to Comment SWRichmond
SWRichmond's picture

The 12 or the 15?

Sun, 02/14/2010 - 19:39 | Link to Comment WaterWings
WaterWings's picture

The 18 is like gold - you have to wait for the right customer, just like gold.

Also, imagine bugging out with X number of bottles...what if you run out of gas? Oh wait, you were planning on walking out of the city? Oh...well. That's all rather heavy. Gold and silver are quite portable!

Okay, really, no matter what you acquire it might as well be the most inexpensive, that you can store securely, without attracting attention. Sprinkle your stash with a couple of 18-year-olders for the sophisticates willing to pay...but forget the masses being able to appreciate the refined items. Cheap booze = silver. Rare scotch = gold.

Think volume.

Sat, 02/13/2010 - 18:44 | Link to Comment sangell
sangell's picture

Thanks for the quantification of the disaster.

Sat, 02/13/2010 - 18:52 | Link to Comment Anonymous
Sat, 02/13/2010 - 18:54 | Link to Comment Anonymous
Sun, 02/14/2010 - 00:28 | Link to Comment bc0203
bc0203's picture

I'd bank on a substantial portion of American retirement savings being tied up in government debt at some point before it's all over.


Sun, 02/14/2010 - 00:45 | Link to Comment bc0203
bc0203's picture

I'd bank on a substantial portion of American retirement savings being tied up in government debt at some point before it's all over.


Sun, 02/14/2010 - 22:10 | Link to Comment Anonymous
Mon, 09/20/2010 - 13:43 | Link to Comment suldog
suldog's picture

+1   I agree 100%.  Confiscation.  And if the revolution has not started by then, that will do it.

Sat, 02/13/2010 - 18:56 | Link to Comment DaveyJones
DaveyJones's picture

I've never seen a horror film with graphs and charts before

Sat, 02/13/2010 - 22:13 | Link to Comment Postal
Postal's picture


Sat, 02/13/2010 - 23:48 | Link to Comment docj
docj's picture

Weapons-grade brilliant, that.

Sun, 02/14/2010 - 14:12 | Link to Comment WaterWings
WaterWings's picture


Sat, 02/13/2010 - 19:08 | Link to Comment Mazarin
Mazarin's picture

Great analysis...should be front page NYT, WSJ, WaPo. But of course, only here on ZH until it's too late.

Sat, 02/13/2010 - 19:29 | Link to Comment hound dog vigilante
hound dog vigilante's picture

deficits matter!

Sat, 02/13/2010 - 22:06 | Link to Comment Anonymous
Sun, 02/14/2010 - 10:06 | Link to Comment Hephasteus
Hephasteus's picture

Someone who can duck?

Sat, 02/13/2010 - 19:31 | Link to Comment foxmuldar
foxmuldar's picture

Definitely scary stuff. I'm betting Obama got wind of coming disaster he has helped create. Thats why he is now talking about tax increases on all of us. States are already rasing their rates on may items. Check your utility bills lately?  A third of the bill is taxes. Its going to get much worse. As Marc Faber says, Were all doomed.

Marc Faber on the US Debt Bubble:


Sat, 02/13/2010 - 19:36 | Link to Comment IKEA Is Swedish
IKEA Is Swedish's picture

"then the US Treasury could see 100%+ of all tax revenues going simply to cover interest expense"

...and the experiment in deficit economics will be over.

Until then, the Hendry vs Taleb contest will be a dandy.

Sat, 02/13/2010 - 20:06 | Link to Comment Anonymous
Sun, 02/14/2010 - 19:07 | Link to Comment Anonymous
Sun, 02/14/2010 - 22:07 | Link to Comment Anonymous
Sat, 02/13/2010 - 20:10 | Link to Comment Comrade de Chaos
Comrade de Chaos's picture

an excellent article but:

"there will simply not be enough demand for treasuries to fund the budget shortfalls just in the upcoming year (let alone the next ten)."


it would be more accurate to say, there won't be enough of demand for treasuries at present low yields. The higher yields will spark the demand from baby boomers and especially pension funds given that the latest have to pay their obligations in dollars. However, the above will cause other negative consequences for example higher cost for corporate borrowings (let's say good buy to all good leverage is it ~ lowers the cost of capital / buyouts models, etc.)

Sat, 02/13/2010 - 20:23 | Link to Comment Mark Beck
Mark Beck's picture

Good presentation, but without buyers the interest rate is of a secondary concern. Can you attract enough T buyers to cover outflows with srinking revenue, without the FED QE2? This is our first hurdle. Then, as you very nicely presented, are the interest rate challenges for rolling old debt and selling new.

Obviously, the FED, when it should tighten, will be forced to roll over T debt it holds on the balance sheet. I do not see any real hope of tightening on MBS securities in FY2010. So for what ever payout, the FED will probably shift towards Treasuries, income on MBS reverse repos will not contribute that much to T buy momentum.

Now ZH has been covering the T buys very closely, which is a good first step. Step two would be to project when the T buy slack has expired, and the administration will start to posture for FED action. How will this be rolled out to the voters? Time is not on their side.

In listening to the president, it is clear that his only real hope of making it through his first term without a budgetary crisis was the health care bill, or as I call it a referendum on Medicare. He was hoping to reduce costs enough to buy him some time to extend beyond debt de-leveraging, but it did not happen. You can hear the frustration in his voice. He will be a one term president, and our economy will weaken steadily under the burden of debt. The US economic situation is extremely fragile. I would be surprised if we make it through CY2010 without a large negative economic trigger.

Mark Beck

Sun, 02/14/2010 - 17:38 | Link to Comment Meridian
Meridian's picture

He was hoping to get health care to tax for five years without providing any services so the money could be reallocated. Of course, as ZH so aptly has decribed in article after article, the outcome will be the same regardless.

Sun, 02/14/2010 - 17:43 | Link to Comment SWRichmond
SWRichmond's picture

Health Care "Reform" was, from the get-go, nothing more than a tax increase.  Obama's inability to pass it threatens the Treasury market's viability.  I think crashing the EU is Plan B.

Sat, 02/13/2010 - 20:25 | Link to Comment RossInvestor
RossInvestor's picture

One of the major problems in this analysis is the exclusion of any discussion on interest rate swaps which represents a large portion of the OTC derivative problem.  If interest rates suddently spike, JPM (by far the biggest player) will implode and the US financial system will collapse as the US's financial problems go exponential.

Sun, 02/14/2010 - 00:15 | Link to Comment SWRichmond
SWRichmond's picture

JPM will implode

that would be awesome

Sat, 02/13/2010 - 20:54 | Link to Comment Anonymous
Sat, 02/13/2010 - 20:58 | Link to Comment trav7777
trav7777's picture

They should also chart the debt growth rate beyond that and overlay SS outflows onto it.

Within no more than a few years, half a decade at most, interest, which is now the #4 expenditure, rises to #1.  When your biggest outlay is interest on debt, you are bankrupt.

We're going to face the ugly side of the exponential curve as tax receipts flag and debt continues to double.  Another doubling of the debt, which should be accomplished in 8-9 years assuming its historical growth rate, will necessarily double interest expenses and this would place them above all other expenditures.

There are two ways out- print or default.  In either case, I do not want to be holding the notes of a bankrupt State.  We are already effectively borrowing to pay interest.  They must at some point seize assets plus effect brute force devaluation of the dollar

Sat, 02/13/2010 - 22:00 | Link to Comment Yes We Can. But...
Yes We Can. But Lets Not.'s picture

"When your biggest outlay is interest on debt, you are bankrupt..."

OMG, I'm hugely bankrupt.


Mon, 02/15/2010 - 14:42 | Link to Comment Blunt Instrument
Blunt Instrument's picture

"When your biggest outlay is interest on debt, you are bankrupt..."


Nope.  When you are unable to fund the interest payments on your debt from income, you are bankrupt.

If your biggest outlay is interest on debt, you are likely overextended.  As long as you can fund it and afford necessities, you are still solvent.




Sun, 02/14/2010 - 00:33 | Link to Comment bc0203
bc0203's picture

Is anyone else concerned that the government keeps piling bailout "assets" onto its ledgers before it's big bankruptcy event?

Just sayin.

Sat, 02/13/2010 - 21:17 | Link to Comment Anonymous
Sat, 02/13/2010 - 21:20 | Link to Comment monopoly
monopoly's picture

We will be able to fund our debt this higher interest rates. Can you imagine what even 50 basis pt. higher treasuries will do to our mortgage market. Housing will continue lower, we will stop bottom bouncing and start the next leg down and forget about jobs. There won't be any quality jobs. Sure, 8,9,10 bucks an hour might work. But a job where you can support your family and hold your head high.

Its over.

Sat, 02/13/2010 - 21:29 | Link to Comment fotokemist
fotokemist's picture

re: choice to either default or inflate:  Don't underestimate the probability of military action, either overt or covert.  It is unlikely to be a good strategy for a country (or its leaders) to give the US PTB too much grief.

Sat, 02/13/2010 - 22:20 | Link to Comment primus
primus's picture

We're already there! We're a superpower-in-name-only!

The US military is the only thing holding the entire Ponzi-fraud swindle stitching together as it is!

Do you really think the red Chinese would be 'loaning' the USA subprime degenerate debt junkie money at 0.000% if we didn't have fleets of aircraft carriers prowling the Pacific Ocean and every other nasty military toy that bites shipping out to Iraq and Afghanistan?

Our feckless government, weather it knows it or not, is counting on unemployment at 25%. It is the only way to boost enlistment to the war machine and keep the mirage of 'America: Shining city on the hill' alive.

Forget about Medicare and SS reform. We might have been able to save them 25 years ago, but instead decided to invest in 'Star Wars' and red baiting. The best thing you can do for your country - and it's corporate masters - at this point is enlist or drop dead before filing for unemployment benifits.

Sun, 02/14/2010 - 22:10 | Link to Comment Anonymous
Sat, 02/13/2010 - 21:43 | Link to Comment Anonymous
Sun, 02/14/2010 - 05:22 | Link to Comment bokapita
bokapita's picture

Superb analysis, rooted in actual physical economic output data. Total applause, for it is easily lost sight of that finance, per se, is meremy a secondary effect of the physical reality it rests ultimately upon.

Sun, 02/14/2010 - 10:00 | Link to Comment Anonymous
Sun, 02/14/2010 - 12:15 | Link to Comment jplotinus
jplotinus's picture

Excellent and helpful comparative analysis.  Thanks.  One difference between now and the '70s though is the different way of calculating inflation.  I wonder what the current rate of inflation would be if based on the same formula in use in, say, 1979?

Mon, 02/15/2010 - 00:26 | Link to Comment D.M. Ryan
D.M. Ryan's picture

John Williams of Shadow Stats has a chart of what it would have been:

Mon, 02/15/2010 - 13:00 | Link to Comment Anonymous
Mon, 02/15/2010 - 18:05 | Link to Comment Anonymous
Sat, 02/13/2010 - 22:11 | Link to Comment deadhead
deadhead's picture

Tyler:  Wow, great piece.


I have followed the discussions on our debt to GDP ratio and recall the usual figure that we are "approaching 90%, on the way to 100%", with which I concur.  Current debt is approx. 12.3 trillion, current GDP around 14 trillion, ergo, around 85% debt to GDP. I'm fully cognizant that this does not include a number of items, unfunded liabilities, etcetera.

This week's Newsweek has an article by Evan Thomas (he is very good imo) and on page 27 he says "The national debt has grown to more than 50 percent of GDP, and according to the....Cong. Budget Office, it could plausibly approach 100 % of GDP by 2020 - a figure not reached since WWII"


It seems to me that Newsweek has made a huge error....Am I missing something here???  WTF?


Thank you.

Sat, 02/13/2010 - 22:50 | Link to Comment primus
primus's picture


I would say Tyler could be right or Evan Thomas could be right or they could both be right or both be wrong. Given the wide disparity between the government / Wall Street concocted fiction caricacture GDP that pops out every quarter VS an honest reading of the 'Gross Domestic Product' - which would require actual productive activity in the first place opposed to the croney capitalist financial services bailouts, turbo charged real estate spectulation and never-ending expanding debt slavery and import consumption that makes up the actual American 'economy'- do you really think it matters? Bankrupt today? Bankrupt last year? Bankrupt next year? You're splitting hairs.

This is one of my favorite quotes from 1984 -

"But actually, he thought as he re-adjusted the Ministry of Plenty's figures, it was not even forgery. It was mearly the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connection with anything in the real world, not even the kind of connection that is contained in a direct lie."

Sat, 02/13/2010 - 23:00 | Link to Comment Great Depressio...
Great Depression Trader's picture

Newsweek is referring to debt held by the public AKA marketable securities (treasuries). The other 5 trillion is IGH or intergovernmental holdings. IGH is SS, medicare. IGH is the money we owe to our retirees. Gov has raided these accounts. Default will happen to IGH before the T market.

Sun, 02/14/2010 - 00:04 | Link to Comment berlinjames02
berlinjames02's picture

Yes... that was the answer I was going to give. It's not as though the SSTF is a pile of money or some asset; it's a whole bunch of IOUs.

To drive the point home that the IGHs are worthless and the SSTF is empty, I relate it to the final scene in 'Dumb and Dumber'.  To paraphrase Lloyd Christmas, "That's as good as money, sir. Those are I.O.U.'s. Go ahead and add it up, every cent's accounted for. Look, see this? That's an aircraft carrier. 900 million. Might wanna hang onto that one."

I guess only looking at the debt held by the public is a better way to massage the numbers? I wouldn't expect anything else from Newsweek, which Jack Welch called a 'Liberal pamphlet' on CNBC one morning. I thought that was hillarious!

Sun, 02/14/2010 - 00:07 | Link to Comment primus
primus's picture

"I fell off the jetway again."

Sun, 02/14/2010 - 10:04 | Link to Comment Anonymous
Sun, 02/14/2010 - 13:40 | Link to Comment deadhead
deadhead's picture

I'll pass on a debate with you but suggesting Evan Thomas is semi literate and a goof justifies my decision to pass.

Sun, 02/14/2010 - 17:42 | Link to Comment Meridian
Meridian's picture

Other than watching him slober all over Obama while he kisses his ass, what exactly do you like about Evan Thomas?

Sun, 02/14/2010 - 22:11 | Link to Comment Anonymous
Sat, 02/13/2010 - 22:17 | Link to Comment Anonymous
Sat, 02/13/2010 - 22:34 | Link to Comment Anonymous
Sat, 02/13/2010 - 22:37 | Link to Comment Anonymous
Sat, 02/13/2010 - 23:45 | Link to Comment CB
CB's picture

I bet the Fedsters like to secretly check in with Zero Hedge to figure out what the hell is going on.

Sun, 02/14/2010 - 00:28 | Link to Comment geopol
geopol's picture

This is one of my favorite sessions with Howard Davidowitz, play the whole thing because he escalates famously....^n225,spy,dia,udn,uup,qqqq



Sun, 02/14/2010 - 12:11 | Link to Comment Molon Labe
Molon Labe's picture

Good stuff.  Thanks gp.

Sun, 02/14/2010 - 02:50 | Link to Comment Anonymous
Sun, 02/14/2010 - 10:33 | Link to Comment Anonymous
Sun, 02/14/2010 - 10:37 | Link to Comment geopol
geopol's picture

Precious Metals



Sun, 02/14/2010 - 03:28 | Link to Comment Assetman
Assetman's picture

Great article.

After reading through, I'm left wondering what's to stop the Treserve from continuing to make stick saves in auctions and subsidizing rates whenever its needed.  It think the Treserve has already shown a pattern of doing what ever it takes to meet an objective.

Right now, the unfoling problems in the EU are great for the US, because at least some flight to quality will help with the mountain of supply.  An engineered equity market crash might help too.  Down the road, though, we back to QE until inflation and/or dollar panic becomes an issue.  After that, they go after our retirement money.

Sun, 02/14/2010 - 08:56 | Link to Comment Anonymous
Sun, 02/14/2010 - 12:30 | Link to Comment Gwynplaine (not verified)
Sun, 02/14/2010 - 14:21 | Link to Comment WaterWings
WaterWings's picture

Ayn put "the formula" into a novel, so that we could all see behind the scenes that they really don't know what they are doing, and that they are willing to murder. Genius.

Sun, 02/14/2010 - 12:17 | Link to Comment Going Down
Going Down's picture




"Don't cry for me Argentina
The truth is I never left you
All through my wild days
My mad existence
I kept my promise
Don't keep your distance

And as for fortune, and as for fame
I never invited them in
Though it seemed to the world they were all I desired

They are illusions
They are not the solutions they promised to be
The answer was here all the time
I love you and hope you love me

Don't cry for me Argentina"


Sun, 02/14/2010 - 12:40 | Link to Comment Anonymous
Sun, 02/14/2010 - 19:03 | Link to Comment perchprism
perchprism's picture


Long term maturity.

Sun, 02/14/2010 - 12:50 | Link to Comment Anonymous
Sun, 02/14/2010 - 13:46 | Link to Comment Anonymous
Sun, 02/14/2010 - 13:58 | Link to Comment Anonymous
Sun, 02/14/2010 - 14:54 | Link to Comment IBelieveInMagic
IBelieveInMagic's picture

It appears that the Feds have purchased and are purchasing significant amounts of Treasuries with new money (QE), what would happen if those debt held by the Feds are voluntarily written off when the US debt becomes too large thereby making the remaining outstanding debt load again manageable. Would it really make a difference? What would be the effect? The purpose of QE would have already been completed that of artificially funding US Treasury (when not enough funds was being attracted due to high private debt load) and forcefully keeping the interest rate low.

Sun, 02/14/2010 - 19:44 | Link to Comment Anonymous
Mon, 02/15/2010 - 16:54 | Link to Comment IBelieveInMagic
IBelieveInMagic's picture

Pardon my ignorance but how will the common folks get wiped out?

As I see it the USD Reserve currency position prevents inflation from taking root as in the case of other not so fortunate currencies. The USD has allowed US government unprecedented ability to spend and provide handouts to it's citizens. Is my understanding correct?


Mon, 02/15/2010 - 20:53 | Link to Comment Anonymous
Sun, 02/14/2010 - 21:44 | Link to Comment Anonymous
Mon, 02/15/2010 - 00:35 | Link to Comment D.M. Ryan
D.M. Ryan's picture

Forgive me for interrrupting, but a rise in interest rates on U.S. Treasury bonds held by taxable entities will push tax receipts up.

Mon, 02/15/2010 - 00:37 | Link to Comment Anonymous
Mon, 02/15/2010 - 13:16 | Link to Comment Anonymous
Tue, 02/16/2010 - 08:48 | Link to Comment Anonymous
Tue, 02/16/2010 - 19:44 | Link to Comment edwardscpa
edwardscpa's picture

Does this analysis account for the interest the Treasury is paying to the Fed, only to be refunded to the Treasury?

To that point, it seems as though so long as we are in fact in a deflation (and that perception holds), the Fed could monetize debt with impunity. Should we even be counting monetized debt as part of the national debt?  Seems like the Treasury and Fed would just cancel each other out and we'd call it a permanent addition to the money supply.

You all do realize that in many parts of the country, housing prices are still completely unjustified by the rents they fetch.  The two need to balance.  So either you're pushing for austerity and lower asset prices in the face of crippling debts, public and private, or higher rents (and therefore wages, and therefore higher prices in general).  Bernanke is a student of the Great Depression, and for those of you who have read Lords of Finance, I don't expect he'll be holding Britain up as a shining example of how to handle this situation. 


Mon, 04/19/2010 - 09:46 | Link to Comment Tom123456
Tom123456's picture

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