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"The Magic Of Compounding" - The Impact Of 1% Change In Rates On Total 2022 US Debt

Tyler Durden's picture


They say "be careful what you wish for", and they are right. Because, in the neverending story of the American "recovery" which, sadly, never comes (although in its place we keep getting now semiannual iterations of Quantitative Easing), the one recurring theme we hear over and over and over is to wait for the great rotation out of bonds and into stocks. Well, fine. Let it come. The question is what then and what happens to the US economy when rates do, finally and so overdue (for all those sellside analysts and media who have been a broken record on the topic for the past 3 years), go up. To answer just that question, which in a country that is currently at 103% debt/GDP and which will be at 109% by the end of 2013, we have decided to ignore the CBO's farcical models and come up with our own. Our model is painfully simple, and just to give our readers a hands on feel, we have opened up the excel file for everyone to tinker with (however, unlike the CBO, we do realize that when calculating average interest, one needs to have circular references enabled so please do that before you open the model).

Our assumptions are also painfully simple:

i) grow 2012 year end GDP of ~$16 trillion at what is now widely accepted as the 'New Normal' 1.5% growth rate (this can be easily adjusted in the model);

ii) assume the primary deficit is a conservative and generous 6% of GDP because America will never, repeat never, address the true cause of soaring deficits: i.e., spending, which will only grow in direct proportion with demographics but as we said, we are being generous (also adjustable), and

iii) sensitize for 3 interest rate scenarios: 2% blended cash interest; 3% blended cash interest and 5% blended cash interest.

And it is here that we get a reminder of a very key lesson, one that even the CBO admitted on Friday they had forgotten about, in what compounding truly looks like in a country that is far beyond the Reinhart-Rogoff critical threshold of 80% sovereign debt/GDP.

The bottom line: going from just 2% to 3% interest, will result in total 2022 debt rising from $31.4 trillion to $34.1 trillion; while "jumping" from 2% to just the long term historical average of 5%, would push total 2022 debt to increase by a whopping $9 trillion over the 2% interest rate base case to over $40 trillion in total debt!

Sadly, this is no "magic" - this is the reality that awaits the US.

And for those more curious about that other critical economic indicator, debt/GDP, the three scenarios result in the following 2022 debt/GDP ratios:

  • 2% interest - 169%;
  • 3% interest - 183.5%; and 
  • 5% interest - 217%, or just shy of where Japan is now.

Which reminds us: in the next few days we will recreate the same exercise for Japan's ¥1 quadrillion in total sovereign debt, which will show why any more "exuberance" arising from Abe's latest economic lunacy, will promptly send the country spiraling into that twilight zone where every dollar in tax revenue is used only to fund interest expense.

Once again, it is not our intention to predict what US GDP or debt/GDP will be in 2022: only the IMF can do that with decimal level precision, apparently, and not just with anyone, but Greece. The whole point is to show that when dealing with a debt trap lasting a decade, even the tiniest change in input conditions has profound implications on the final outcome. We invite readers to come up with their own wacky and wonderful projections of what the futures of the US may look like.

And that one should, indeed, be careful what one wishes for.

The results summarized for the three scenarios:

Total debt: 2013-2022.

Debt/GDP: 2013-2022:

The Zero Hedge open source model, for everyone to play around with, can be found here. Remember: don't be a CBO, enable circs!

P.S. don't even think of modelling a recession: everything Refs up then.


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Sun, 01/06/2013 - 21:27 | 3128332 IridiumRebel
IridiumRebel's picture

Put a fork in us.

Sun, 01/06/2013 - 21:37 | 3128354 boogerbently
boogerbently's picture

"New" interest rates apply to "new" loans or interest.

The infaltion they are trying to trigger will (down the road) allow us to pay "old/lower" interest, with more income/dollars.


Sun, 01/06/2013 - 21:43 | 3128366 Tyler Durden
Tyler Durden's picture

And "old" rates apply to "old" loans and interest - all debt issued before 2008 has cash interest that is not ZIRP, and the bulk of it is far from maturity. The fulcrum point of temporal low rates in the context of inflation, will come and go in a heartbeat.

Sun, 01/06/2013 - 22:05 | 3128420 dexter bland
dexter bland's picture

I would look for a rotation out of bonds AND out of stocks (though probably starting with the bonds). The prices of these asset classes aren't so inversely correlated these days, sometimes they are positively correlated.

Higher rates will have quite scary consequences for an economy hooked on cheap money: housing, consumer spending, fiscal deficit, dividends etc, not exactly an equity friendly environment.

Sun, 01/06/2013 - 22:27 | 3128492 trav777
trav777's picture

the Fed will just have to print more, won't they?

Amazing how the first term of this joke President featured (according to Treasurydirect) an increase of about $6T in debt and nobody says much of squat about it.

Sun, 01/06/2013 - 22:33 | 3128510 Stuck on Zero
Stuck on Zero's picture

Printing will solve all the problems.  It will simply be a race between the printer and the interest rates.  I suspect the printer will win even if interest rates go to infinity.


Mon, 01/07/2013 - 00:34 | 3128701 socalbeach
socalbeach's picture

I still say you have to subtract off intra-governmental debt holdings of $4.8+ trillion from the widely quoted figure of $16+ trillion in total debt.  I would add the SS and Medicare spending to the debt when it occurs, as the promises made to seniors can be changed or reneged on.

Secondly I would subtract some fraction of the monetary base from total debt since the Treasuries the Fed has purchased have been effectively retired.  A case could be made that the total amt of MBS purchased should be subtracted as well, since the interest the Fed receives from those are remitted back to the Treasury, but maybe not.  It's not clear to me if there is any net MBS interest as the Fed may have overpaid for those securities and/or purchased bad loans which will cause a loss overcoming any interest received.

One can see from the following link that interest rates and interest expense for the fed gov't are going down, and the chart doesn't even take into account interest rebates from the Fed which I understand were close to $100 billion for 2012.

That's not to say things are going to be a-ok, I'm expecting continued if not accelerated price inflation if the fed gov't doesn't drastically cut back on spending.

Mon, 01/07/2013 - 00:45 | 3128754 secret_sam
secret_sam's picture

          interest rates and interest expense for the fed gov't are going down

How low can the Fed keep rates at $160B/month in bond purchases?


OH!  Just for the hell of "crazy speculative stuff" what happens if the FEDGOV deficit becomes zero overnight?

Mon, 01/07/2013 - 01:37 | 3128806 socalbeach
socalbeach's picture

I come up with net interest expense as a percentage of revenue for the Fed gov't of only about 5.3% given the following figures (billions).  I don't have any economic models that would allow me to predict what would happen with the scenarios you propose.

222.47 = total interest expense

80 = Federal Reserve interest rebates

2,671.3 = total revenue

5.3% = 100 * (222.47 - 80) / 2,617.3

Interest expense


Interest rebates

So obviously the US gov't has a spending problem but the interest expense isn't significant yet.  How about cutting back on military spending?


Mon, 01/07/2013 - 07:59 | 3129028 TwoShortPlanks
TwoShortPlanks's picture

After reading much of the blood and guts of Holdren's Ecoscience (1977) this feels kinda like Triage in Lifeboat Ethics.

A series of bubbles and pops to lever-up and fleece the sheeple, GFC to make excuses/blame, 5 years of ZIRP/QE's, Stimulus, Bail Outs (No prosecutions to speak of; as if all the puppets were doing exactly what they were meant to be doing), re-cap banks but fuck the public, Eastern Gold buying habits, integration of Iraq and Libya, de-weaponing the US, Sustainable Development (Agenda 21)....hmmmm, ugly thoughts are appearing....could everyone be in on it but the sheep?

Did Holdren's white paper kick-start a secret revolution?

Mon, 01/07/2013 - 10:34 | 3129285 Panafrican Funk...
Panafrican Funktron Robot's picture

Your general point here is well made, nominal deficits can be pretty easily handled with nominal Fed action.  Mind you, these actions can do quite a number to what is reported as real wealth, but then again, real wealth is probably massively overestimated when you back out all the ponzi bullshit.  The only thing that's actually important is that deficit spending is a great, great way to accelerate the transfer of public wealth to private hands, and the debt, the more power those private hands have over the public wealth.  Ergo, debt will, for sure, keep increasing, and deficit spending will remain high.  That's the alpha and omega of it.  

Mon, 01/07/2013 - 10:43 | 3129306 Panafrican Funk...
Panafrican Funktron Robot's picture

The other point is that the buyers/holders of debt aren't necessarily interested in seeing a return on that investment at face value (except the plebs, and who gives a fuck about them, right?).  They're buying influence.  Influence can get you real assets at incredible bargains, with a government guarantee.  The slap on the wrist for B of A today is a really great example.  

Mon, 01/07/2013 - 01:44 | 3128809 fourchan
fourchan's picture


an education on unsustainable reality.

Sun, 01/06/2013 - 22:55 | 3128564 trillion_dollar...
trillion_dollar_deficit's picture

Nobody says squat about it because we dont have a spending problem. At least according to ObAmA+:



Sun, 01/06/2013 - 23:42 | 3128658 AssFire
AssFire's picture

Ineptocracy (in-ep-toc'-ra-cy) - a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

Mon, 01/07/2013 - 06:15 | 3128990 Uber Vandal
Uber Vandal's picture

Sounds an awful lot like the movie Idiocracy.



Mon, 01/07/2013 - 06:58 | 3129016 More_sellers_th...
More_sellers_than_buyers's picture


Sun, 01/06/2013 - 23:00 | 3128573 smlbizman
smlbizman's picture

so whats the number when we dont give a fuck anymore.......whats the over/under on this rotting about closest to the pin with year and month than amount that finally according to the tylers turns the lights out.....winner gets fitty bucks.......

Sun, 01/06/2013 - 23:23 | 3128620 DaveyJones
DaveyJones's picture

That's brilliant - a new number called "don't give a fuck anymore"

I raise one to you

No number was ever better named.

Mon, 01/07/2013 - 02:56 | 3128886's picture

"Zero fucks given" would be approriate.

Mon, 01/07/2013 - 05:12 | 3128955 monkeyshine
monkeyshine's picture

Fuck it all

Mon, 01/07/2013 - 08:11 | 3129051 spentCartridge
spentCartridge's picture

Infinity + 1?

Sun, 01/06/2013 - 23:17 | 3128603 michael_engineer
michael_engineer's picture

Since we don't really need the debt, lets just stop paying interest on it, and from now on only pay for real things that we really need.

Mon, 01/07/2013 - 00:09 | 3128693 lewy14
lewy14's picture

What could possibly go wrong?

Mon, 01/07/2013 - 06:06 | 3128982 Heavy
Heavy's picture

fake money could eat itself

Sun, 01/06/2013 - 23:21 | 3128612 DaveyJones
DaveyJones's picture

each new guy will have to outdo the other until this place blows

Mon, 01/07/2013 - 01:11 | 3128796 sansnobel
sansnobel's picture

No shit Trav, what part of  "we have a printing press" do these fucking morons who are short bonds don't understand?  You people will get nothing on your fucking precious money.  I flew with some fucking moron a few years back that thought the Fed only had a very small influence on the Treasury curve.  That has been John Maynard Keynes' wet dream from the git go.  The elimination of the "rentier class".  The only thing that will show the fucking communists the fucking reality is for everybody in America to pull out of fucking banks because the Gov. is pushing 30yr war bonds at .02% when real inflation is at 8-10%  this country is fucking hopeless.

Mon, 01/07/2013 - 06:47 | 3129012 merizobeach
merizobeach's picture

"this country is fucking hopeless."

Yass! Yass! Save yourselves and GTFO. (But nearly no one will.)

Mon, 01/07/2013 - 09:22 | 3129139 TerminalDebt
TerminalDebt's picture

yeah yeah, people have been saying that for years now, and will keep saying it for years to come.

It's like the guy on the street corner crying "the end is here, repent"

Tue, 01/08/2013 - 09:11 | 3132392 merizobeach
merizobeach's picture

Whatever, dude.  I G-myself-TFO in '96 and have thanked myself for that ever since.

Mon, 01/07/2013 - 06:22 | 3128995 agent default
agent default's picture

Printing will cause people to dump the USD, and get out of Treasuries even faster so interest rates rise even further.  Anybody done the calculation with 8% or 10% interest rates?  It's mind boggling.

Mon, 01/07/2013 - 12:18 | 3129614 Panafrican Funk...
Panafrican Funktron Robot's picture

"Printing will cause people to dump the USD"

Odd, then, that people still buy the Yen.  Or the Euro.  Or any number of other currencies with the printing presses stuck firmly in the "on" position.

The only thing that will actually collapse the system is for people to remove themselves (to the greatest extent possible) from fiat regimes.  The good news is that only a very small percentage of people is actually needed to accomplish this.  The bad news is that a depressingly tiny percentage have actually done it so far. 

Sun, 01/06/2013 - 22:31 | 3128504 Cycle
Cycle's picture

A Minsky moment is the economic phenomenon that occurs when over-indebted investors are forced to sell good assets to pay back their loans, causing sharp declines in financial markets and jumps in demand for cash.[1][2]

Mon, 01/07/2013 - 00:47 | 3128759 secret_sam
secret_sam's picture

"D'oh!" --Homer Simpson

Mon, 01/07/2013 - 01:28 | 3128810 Karlus
Karlus's picture

The reality is the debt we owe the Chinese and Saudis will never be paid.

In the case of the Arabs, they know, but its the cost of us defending them. They blow money on Lambos and some vaca for nephews, but their savings (debt held) really worthless to them.

The really interesting part is the Chinese. Can they build a middle class before we default them? Its a race, they cant go to war with us because of Tridents, so they wait until currency collapse and to see what Vladimir (or whoever Runs Russia) will do. In the confusion of our default (or our Civil War 2) they grab Japan whilst the Indians and Pakis nook each other.

Long term, USA is a winner, because we are isolated, have resources to the north and south, along with natty and water, we survive.

Hows that?

Mon, 01/07/2013 - 10:24 | 3129254 Bee
Bee's picture

Still not very pleasant.  Even though we survive we probably degenerate into one of the following:

Tyranny with heavy handed central government, mass poverty, starvation and loss of personal freedoms.

Tribalism, fragmentation.  Fear, revenge and counter-revenge dominate. 

Mon, 01/07/2013 - 01:07 | 3128788 FL_Conservative
FL_Conservative's picture

Are P/E ratios really elastic as moderate-to-hyperinflation kicks in?  That seems to be the "educated" thinking on the matter. Me doesn't think it works like that.

Mon, 01/07/2013 - 10:36 | 3129292 GMadScientist
GMadScientist's picture

These days, I'd be more concerned about the divisor and the effect of inflation on margins with respect to same.

Sun, 01/06/2013 - 23:01 | 3128575 vast-dom
vast-dom's picture

the question is for whom the "old" rates apply and who is paying and not paying and how is it all being written off and or subsidized and or refinanced.

Mon, 01/07/2013 - 00:02 | 3128683 knukles
knukles's picture

Other side of the curtain and just as unsustainable, is that the Fed'll be buying all the new issuance and interest payments thereupon are rebated back to Treasury....

Either way the whole bloody thing is on tenterhooks as is and looking poorly....especially with nitwits possessing particularly influential bully pulpits like Krugman convincing the economic and financially Illiteratis that the Platinum Coin Quick Fix is entirely reasonable and responsible.

Not to mention Mrs LeGarde (sp? Frog at the IMF) now blubbering on about the debt ceiling being a potential cause for Global Economic Collapse.

We're all so screwed.  As Tricky Dicky was reputed to have said to H.S.Thompson, something like "Doomed.  Doomed I say.  We're all fucking Doomed. 

Mon, 01/07/2013 - 00:18 | 3128702 JohnG
JohnG's picture



The same banks that control Washington now did then as well, only under different banners.

Old Dick knew what would happen when he finished what FDR started.



...he was right.


Mon, 01/07/2013 - 01:48 | 3128830 ozzz169
ozzz169's picture

not to mention that this year we are rolling over 3 trillion plus the 1 trillion in new debt, so only 4 trillion to sell. "old" loans become new loans pretty fast but don't worry the fed will own all the debt before too long, and all the "profits" will be put back in the treasury so who cares what the rates are will be irrelevant.   And boom goes the dynamite

Mon, 01/07/2013 - 03:55 | 3128921 cranky-old-geezer
cranky-old-geezer's picture



Nonsense, there will be no rise in rates from now on, it's truly an end game.

What will happen is curency collapse from all the printing to fund all the new debt ZIRP ...and keep buying shit from banks, etc.

It's called "looting a nation (to poverty)"  ...something you seem reluctant to talk about.  

Wed, 01/09/2013 - 04:59 | 3135618 MeelionDollerBogus
MeelionDollerBogus's picture

who the fuck gave you a +1?

I mean really, you just told off one of the Tylers for NOT mentioning enough looting, or taking enough of a hard stance on it?


I know I'm caricaturizing but would you call Scrooge McDuck by the name Jon Nadler?

Sun, 01/06/2013 - 21:42 | 3128362 vast-dom
vast-dom's picture

Historical rates you say? History is no longer applicable. Neither is logic, accounting, fundamentals, P/E, playing with charts, or anything else. 

Sun, 01/06/2013 - 21:49 | 3128371 Supernova Born
Supernova Born's picture

The Republicans' agreement on the fiscal cliff took away the Bernank's pre-scripted excuse for a continuing/further deterioration in economic conditions. He needed a new one.

The next day? Bernank states rates won't stay low.

Bernank knows a depression is at hand, he has to have "cover " and he'll make up whatever cover story he needs for what his actions preordained.

Sun, 01/06/2013 - 23:27 | 3128629 DaveyJones
DaveyJones's picture

or legal principles

Sun, 01/06/2013 - 21:44 | 3128369 philipat
philipat's picture

Simple, that means 40 Platinum coins. Next......

Sun, 01/06/2013 - 22:27 | 3128494 logically possible
logically possible's picture

I prefer to call them platinum zimbabwes.

Sun, 01/06/2013 - 21:57 | 3128402 Eireann go Brach
Eireann go Brach's picture

Obama and Bernanke both grunt at their wives, this will be someone else's problems by then!

Sun, 01/06/2013 - 22:19 | 3128458 CPL
CPL's picture

Won't be anyone's problem.  Eventually it horribly breaks and irrepairable because fundementals are just starting to be ignored now.  Right now the HFT's are 'playing' the rules written in pencil and can be changed at a moments notice.


When the rules are rewritten weekly and the bailouts are weekly.  We will all be holding onto our asses by that point though.

Mon, 01/07/2013 - 00:33 | 3128733 JohnG
JohnG's picture



It's Calvinball:

1.2 Any player may declare a new rule at any point in the game. The player may do this audibly or silently depending on what zone (Refer to Rule 1.5) the player is in.

Mon, 01/07/2013 - 00:49 | 3128764 secret_sam
secret_sam's picture

        Eventually it horribly breaks...

Never let anything matter quite so much as "horribly," eh?

Mon, 01/07/2013 - 08:13 | 3129053 Gazooks
Gazooks's picture

knock-on effects ala 'colateral' valuation slips underlying 600 trillion$ in derivatives


there's horror potential algo squid should enjoy reaping

Mon, 01/07/2013 - 00:41 | 3128749 ball-and-chain
ball-and-chain's picture

But will interest rates get raised?

That's the million dollar question.

I don't think so.

10 years from now, they might be at 0 percent.

This could be the new normal.

Depressing.  But true.

Mon, 01/07/2013 - 01:09 | 3128791 PGR88
PGR88's picture

Why so worried?   The USA's economy need only to grow at 10% per year, and the debt will be down to a manageable 80% of GDP by 2022.

Surely the USA can grow at 10% per year, with a proper Fed policies, Gov't central planning, and appropriate income redistribution??

Mon, 01/07/2013 - 07:27 | 3129024 Irelevant
Irelevant's picture

In other news, plane with 1.5 tons of tradition grounded in Istambul

Sun, 01/06/2013 - 21:28 | 3128333 Silver Garbage Man
Silver Garbage Man's picture

The silver chart is going to be more impressive than that. That is a good thing.

Sun, 01/06/2013 - 21:29 | 3128334 bania
bania's picture

I get Cougar Life ads on one side, and Christian Single ads on the other. I know these ads are targetted. What does this say about me?

Sun, 01/06/2013 - 21:32 | 3128349 Gypsyducks
Gypsyducks's picture

I believe that makes you eligible for promotion at the SEC.

Mon, 01/07/2013 - 01:15 | 3128782 Freddie
Freddie's picture

dupe post

Mon, 01/07/2013 - 01:19 | 3128795 Freddie
Freddie's picture

He might be able to move up to a gig at the NY Fed.

Sun, 01/06/2013 - 21:46 | 3128360 Taint Boil
Taint Boil's picture



Clean out your cookies.

Log back in.

Report your status.


* I clean the cookies after I visit Zero Hedge.

Really don't need to, what could possibly happe ...<snaaaap>

Sun, 01/06/2013 - 21:56 | 3128398 deeznutz
deeznutz's picture

it says 'get adblock'

Sun, 01/06/2013 - 23:11 | 3128590 ForTheWorld
ForTheWorld's picture

As well as Ghostery.

Sun, 01/06/2013 - 22:32 | 3128507 CPL
CPL's picture

You've enjoyed entertainment from various websites in the past that dropped a cookie in your browser that told the google adword empire.  Adwords reviewed your browsing history by your mac address/ip address/browser cookie.  

With more processing power than any public or private enterprise on the planet and some of the smartest SME's in the fields of psychology, sociology, computer intereaction specialists, engineers and programmers.  This army of people developed AI to figure out what you needed to be offered based on past, near current and predicted future needs.   Which is your penitant need for women that know what they are doing, yet have a spiritual sense.


So after watching visual kinect naturalist art or Christain 40 year olf hawtie Ass Blasted, clear the cookies.  You'll see truck ads and twerps selling their investment services after a refresh.


So folks, remember clearing cache does not clean the cookies.

Mon, 01/07/2013 - 00:52 | 3128768 secret_sam
secret_sam's picture

Dude, that was righteous...

Sun, 01/06/2013 - 22:49 | 3128550 TheProphet
TheProphet's picture

You're a Republican member of Congress?

Democrats get a Cougar ad and another for teenage girls from Zoosk.

Sun, 01/06/2013 - 23:58 | 3128679 Raymond K Hessel
Raymond K Hessel's picture

Absolutely nothing... apparently, we are all getting this.  I think it's a psyop to distract away from ... .oh look boobies!!! 

Mon, 01/07/2013 - 00:53 | 3128771 secret_sam
secret_sam's picture

that last snorgigirl wasn't uh er...

Mon, 01/07/2013 - 00:17 | 3128698 ZeroAvatar
ZeroAvatar's picture

Mentalo says, "I see bread and circuses in your future."



Mon, 01/07/2013 - 08:26 | 3129073 zilverreiger
zilverreiger's picture

christians to the lions

Sun, 01/06/2013 - 21:29 | 3128335 lolmao500
lolmao500's picture

Yet all the pension funds continue to buy those crappy bonds.

Sun, 01/06/2013 - 22:57 | 3128568 Spigot
Spigot's picture

P-Funds are basicly REQUIRED to invest in government bonds. They can not invest in much risk, by Statute.

Sun, 01/06/2013 - 21:30 | 3128339 dunce
dunce's picture

Gee whiz, who knew that the miracle of compound interest works both ways? Gad zooks, the comic book budget process might have a flaw.

Mon, 01/07/2013 - 00:54 | 3128773 secret_sam
secret_sam's picture

If it's too expensive to get grey ink right, switch to green.

Mon, 01/07/2013 - 03:48 | 3128918 Joe moneybags
Joe moneybags's picture

If I get the point of 1/2 of your posts, Secret Sam, I'll be elligible to join MENSA.

Mon, 01/07/2013 - 10:15 | 3129233 secret_sam
secret_sam's picture

Multidimensional in-jokes.

Back when Stan Lee invented The Hulk, he originally wanted the character to be grey.  The comic-printing process at the time wasn't sophisticated enough to produce a consistent grey color without paying a lot more than they wanted, so they switched him to green.

When it's more expensive to get contracts and laws and paper equities to "work" properly in the modern financial environment than it is to print money, the solution is similarly obvious.

Sun, 01/06/2013 - 21:30 | 3128340 Snakeeyes
Snakeeyes's picture

this is why Bernanke is going ape and will NOT stop easing. Or making trillion dollar platinum coins.

Sun, 01/06/2013 - 21:30 | 3128341 buzzsaw99
buzzsaw99's picture

Japan is the future for the usa. 1% on the 10y imminent imo.

Sun, 01/06/2013 - 21:32 | 3128346 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Bernanke will try.

Sun, 01/06/2013 - 21:45 | 3128373 VATICANT
VATICANT's picture

See you at the party Richter!

Sun, 01/06/2013 - 21:50 | 3128386 buzzsaw99
buzzsaw99's picture

What starts to look like a bond crash ends as a very ugly stock market crash thus preventing the former. The first move is always wrong and logic always fails in manipulated markets.

Sun, 01/06/2013 - 23:17 | 3128605 bilejones
bilejones's picture

There's some truth in what you say, the question is , with a 1% interest rate, where does the money go?

Sun, 01/06/2013 - 21:31 | 3128344 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Maybe Bernanke will pay the interest too.

Sun, 01/06/2013 - 21:32 | 3128348 Jason T
Jason T's picture

70% of US debt today is the interest and it's projected we spend $5.89 trillion on net interest expense the next 10 years.  


Sun, 01/06/2013 - 21:34 | 3128350 Raymond_K_Hessel
Raymond_K_Hessel's picture

2022, ha! We will have long since debauched the currency by then!

Sun, 01/06/2013 - 21:43 | 3128355 ekm
ekm's picture

I've been telling you that Obama is quite close if not already have signed the executive order to tell PPT to crap the market, same as Bush in 2008.


If this doens't convince you, I don't know what else is going to convince you.

I'm not trying to convince Cullen Roche debating with ZH the other day on twitter as to why the Fed will ever unwind the balance sheet.




Sun, 01/06/2013 - 21:48 | 3128379 Everybodys All ...
Everybodys All American's picture

... and that would accomplish just what for the Fed? Someone to sell there treasuries to I suppose is your argument. That just makes no sense to me. Granted some will be dumb enough to take on a treasury that pays around 2% for thirty yrs. but not me.

The Fed is in a pickle and it's eating all options including a paniced market.

Sun, 01/06/2013 - 21:57 | 3128401 ekm
ekm's picture

The Fed has become just a tool. They make no longer decisions. Decisions are made in the white house, whoever is behind Obama. Same as during Bush's time.


If the Fed keeps the bonds until maturity, it is practically its death. The Treasury will have to pay the Fed the principal........but can the Treasury pay? So, the Fed and the Treasury become one in practise.

Moreover, the real economy touches no money like this.


Same as in 2008 when Bush and Hank Paulson organized the collapse because they had no choice, Obama and whoever will be the Treasury Sec, are forced to organize a collapse so they erase few trillions from the market.

Mon, 01/07/2013 - 01:00 | 3128777 secret_sam
secret_sam's picture

I think the folks who were making decisions "same as Bush's time" are largely the same folks...  That kinda sorta which means "the white house" isn't anything but another PR outlet puchased by dollas chasin' loot...

Er...did I mean to say that out loud?

Mon, 01/07/2013 - 07:43 | 3129035 negative rates
negative rates's picture

Breaking news, read all about it.

Treasury bends over for the Fed!

Mon, 01/07/2013 - 00:22 | 3128711 laboratorymike
laboratorymike's picture

I would buy a few of those bonds, for 0.0000000001 cents on the dollar. I can then stick my trillion dollar bonds next to my 100 trillion Zimbabwe dollar note in my fiat currency collection.

Sun, 01/06/2013 - 21:53 | 3128390 Atomizer
Atomizer's picture

Enjoy your insight always. He, she, or it can no longer unwind the balance sheet. The days of soft landing, FED putting the brakes on, and an exit strategy are gone. MSM will spin this into a national security crisis.

I welcome this crisis.  The only fear, if we don’t cooperate with more taxpayer looting.


Sun, 01/06/2013 - 22:04 | 3128407 ekm
ekm's picture

Thx a lot. Likewise.

The White House has no options. The extra liquidity sloshing around is creating crude oil and food hyperinflation.


They will erase few trillions in the market, by force, not by choice. Same as Bush. He didn't want to, but he was forced due to crude oil and food prices.


I think the decision was made in Nov 2011 when MFG was collapsed on purpose, but at the last moment something happened and they seem to have changed their mind and came up with the global bailout.

No wonder nobody's touching Corzine. He did what told, IMO.

Sun, 01/06/2013 - 22:23 | 3128476 Atomizer
Atomizer's picture

Agreed. I remember watching LIBOR unfold while flying down to Marco on 4th of July weekend. Was absolutely sick to myself. Today, I’m desensitized. These fuckers are going down. {they can laugh at our posts until the final day approaches} It will be done legally of course! :)

Sun, 01/06/2013 - 22:29 | 3128496 ekm
ekm's picture

Rule number 1 of collapses:



Mexican devaluation of 60% overnight is one of the best executed scenarios.

The night before the official devalue, the mexican gov declared live on tv that no devaluing will ever happen.

The gov does this to lure as many suckers as possible, everybody if possible, because they want to do this only once and pause for a long time.

Mon, 01/07/2013 - 00:47 | 3128760 Oldrepublic
Oldrepublic's picture

López Portillo "I will defend the peso like a dog!" said just before 1981 Mexican peso devaluation

Mon, 01/07/2013 - 01:02 | 3128779 MsCreant
MsCreant's picture

Sounds like he "screwed the pooch."

Sun, 01/06/2013 - 21:39 | 3128358 chubbar
chubbar's picture

This doesn't hold together until 2022. Anyone watching the speed in which the gov't is destroying the constitution can see that we are less than a couple of years out from collapse.

Sun, 01/06/2013 - 22:57 | 3128567 hairball48
hairball48's picture

Exactly right

Sun, 01/06/2013 - 21:40 | 3128359 Atomizer
Atomizer's picture

2022 is a tooth fairy fantasy drummed up by 'kicking the can down the road' steering committee.  Once these fuckers take the death by natural causes 'dirt nap', all bets are off for dented economy can!

Sun, 01/06/2013 - 21:41 | 3128361 yogibear
yogibear's picture

This is why Bernanke and the Federal Reserve bankster can't stop QE and buying US debt. What other fools want US treasury bills?

A few other countries have wised up.

Wait until there is a rush of US dollars (dollar dumping) into the US. 

Sun, 01/06/2013 - 21:42 | 3128363 Catullus
Catullus's picture

I see it's the new Bizarro version of Excel.

Where's the model where I pull the cells across to show my company's earnings growth? I need to push that up against the 12x, 15x, and 30x EBITDA assumptions.

Sun, 01/06/2013 - 21:46 | 3128375 lizzy36
lizzy36's picture

What?? You made a model? 

Don't you know the success of financial bloggers is predicated on FRED charts, slideshows, and coming up with ridiclous ideas about coins and the debt ceiling and then going on tv and making the story about yourself and your "invention".

Sun, 01/06/2013 - 22:09 | 3128429 Atomizer
Atomizer's picture

Shhhhh. We first have to watch the breakdown of Honey Boo Boo mob first. After all the tricks are preformed, and no money is flowing in. Deem peepholes wellas bee tore up. /sarc

Mon, 01/07/2013 - 01:14 | 3128778 Miles Kendig
Miles Kendig's picture

The killer is the ratios.  We now have an approximation .. errr ... model of how the metals have no value crowd values metals as currency.  Looking at their initial offer at table one must wonder which of the ideas/concepts, trillion dollar coins or fed economists (and those that suck up to them for some flow of their own) understanding of markets is more tragically laughable.

Sun, 01/06/2013 - 21:55 | 3128396 Go Tribe
Go Tribe's picture

In other words, the Fed cannot afford to let rates rise without one helluva real recovery.

Sun, 01/06/2013 - 22:02 | 3128409 nmewn
nmewn's picture

This is why Benny will always be my bitch.

Sun, 01/06/2013 - 22:03 | 3128412 egoist
egoist's picture

Peter Schiff said, the other night, that we all complain that our kids will be paying back our debts, but we're wrong - we will be repaying this debt by wild inflation. The point may seem obvious, but I think it's worth thinking about the implications of it being us and not our kids. If that were widely held, mightn't that light a fire under the ever-devouring lunatics? I danno.

Sun, 01/06/2013 - 22:56 | 3128548 fonzannoon
fonzannoon's picture

Schiff in my opinion, underestimates some stuff. He has underestimated the fed's abilities with Zirp.

To your point, Schiff said several times that it won't be our kids that pay this back. The reason he gave was because the kids will leave. This country was founded by people escaping oppresive governments and looking for opportunities. He is right about that. But where are these kids going to go? It's the same shit in the rest of the developed world, and good luck heading to Russia or China.

Mon, 01/07/2013 - 00:28 | 3128725 laboratorymike
laboratorymike's picture

USA is currently #10 for economic freedom in the world, and I think the Heritage Foundation is being a little generous. There are other parts of the world with a reasonable amount of freedom, or at least a chance at starting a new life. Just select the metrics that matter most to you for some suggestions.

Sun, 01/06/2013 - 22:07 | 3128423 fonzannoon
fonzannoon's picture

is it any worse off in Japan right now for their economy or are they just having fun riding the stock market wave?

Sun, 01/06/2013 - 22:20 | 3128465 ekm
ekm's picture

They will seize the pension funds. I'm just adopting your idea.

Hungary did it 2 years ago. Spain is doing it now.

Sun, 01/06/2013 - 22:26 | 3128488 Everybodys All ...
Everybodys All American's picture

If you bought the Nikei in Dec 1989 you're not very happy. Nikei was 38,916 in late 1989 and today 10,650. If we are going Japanese then this market is very overpriced and any enjoyment will be short lived.

and I do believe pensions will be forced to own Treasuries here as well.

Sun, 01/06/2013 - 22:45 | 3128542 fonzannoon
fonzannoon's picture

No argument about the market, but it's an interesting disctinction. If you take our equity market down the way the Nikkei has fallen our economy would be in shambles. The wealth effect is all we have. How has Japan managed to hang in there after such a massive hit to their equity market? Is it because no one there has equities and only bonds?

Sun, 01/06/2013 - 22:56 | 3128566 ekm
ekm's picture

Easy answer: Exports

As long as the world accepts their exports, they will solve debt issues by seizing pensions since most of the debt is owned by japanese pension funds.

Once they get really old or the world is full of TVs and cars, they are screwed.

Sun, 01/06/2013 - 22:59 | 3128572 fonzannoon
fonzannoon's picture

So taking exports into consideration....Japan's debt load is twice ours, but we may implode first?

Kyle Bass keeps hammering home the "optomism bias" that "Japan is self funding".

Schiff says the US goes first. Bass says Japan. Should be interesting to see, and by interesting I mean awful.

Sun, 01/06/2013 - 23:06 | 3128579 ekm
ekm's picture

If the debt is owned by your own people, the debt does not matter. The gov will seize the pensions.

The part of the debt that americans owe to the gov, is irrelevant. The gov will implement financial repression.

The problem is the part of the debt owed to China. China does not accept financial repression.


Kyle BAss is brilliant, but as everybody brilliant outhere, he's a top predator looking for preys. That's how he became famous with greek bonds swaps. Top predator.

Sun, 01/06/2013 - 23:08 | 3128585 fonzannoon
fonzannoon's picture

For all we know they already did. We are all getting bernie madoff statements now.

Sun, 01/06/2013 - 23:11 | 3128591 ekm
ekm's picture

No the chinese haven't. Otherwise the US Navy would have started major shift to the south china sea.

Based on what I read, china has asked for payment with land, basically withdrawal of the US Navy from south china sea.


They still remember paying the debt to England after the opium wars with They called it Hong Kong. It was debt payment plus trade concessions.

Sun, 01/06/2013 - 23:18 | 3128606 fonzannoon
fonzannoon's picture

if we hard defaulted on China, what would they do about it? wage war? 

Sun, 01/06/2013 - 23:22 | 3128613 ekm
ekm's picture

Correct but in an milder way.

They will simply invade Taiwan claiming it as payment, same as Russia did by invading russian speaking areas of the country of Georgia as payment for USA not paying 100% on fannie and freddie bonds.

Chinese general were openly asking US Navy to leave. I remember bloomberg interviewing an admiral of the navy at the time....BLOOMBERG????

After the russian attack, lo and behold, both china and russia were paid 100%.


Sun, 01/06/2013 - 23:25 | 3128623 fonzannoon
fonzannoon's picture

very interesting. so they get taiwan and the US just looks away and things just keep rolling along with the US and the markets?

Sun, 01/06/2013 - 23:28 | 3128631 ekm
ekm's picture

If US let Taiwan go, China will have free hand and nobody will ever fear USA.


Hence, the meetings in Switzerland of central bankers.

IMO, they are trying to convince China and Russia to accept another crash. I think Russia has accepted under certain conditions, but China seems not to budge.

Sun, 01/06/2013 - 23:30 | 3128635 fonzannoon
fonzannoon's picture

you are badass tonight ekm. 

Sun, 01/06/2013 - 23:36 | 3128643 ekm
ekm's picture

The very creation of USA in the current form was a debt payment by land.

Napoleon owed millions in gold to USA and he had wars going on in Europe. He couldn't wage war into USA unlike england to china, so he came up with the idea to sell the land to USA, thus paying off the debt plus some gold to finance his euro wars.

Hence, Louisiana Purchase. Simply payment by land.


Mon, 01/07/2013 - 07:50 | 3129040 negative rates
negative rates's picture

Wrong, he owed nothing to the U.S. He was given $13 million from the dutch and english which held the notes to $13 million of land we bought in the Louisana purchase.

It was a nice try though, there are still plenty of suckers to bait and switch with. 

Mon, 01/07/2013 - 08:44 | 3129087 ekm
ekm's picture

The core idea is that it was a debt paid with land.

You just proved what I said.

Mon, 01/07/2013 - 01:33 | 3128817 Freddie
Freddie's picture

Taiwan will go. China and Taiwan will work out a deal.  Taiwan will not be happy but they will argue they are the same people.  I hope China gets Hawaii.   They backed the muslim and Hawaii covered for him.  China will want a lot more.  If it all falls apart they may go for the West Coast.  Russia will grab Alaska.

Mon, 01/07/2013 - 02:48 | 3128877 rufusbird
rufusbird's picture

Then Sarah will really be able to see Russia from her back porch!

Mon, 01/07/2013 - 10:36 | 3129291 cranky-old-geezer
cranky-old-geezer's picture



Sounds similar to state govts selling public buildings, parks, toll roads, etc, just on a much larger scale.  

Alaska might go to Russia technically, easier to sell that idea to the American sheeple, Russia had it originally, but it would really be going to China who holds far more US debt than Russia.  North slope oil and other resources would certainly go to China.  

If China and Russia agreed to forgive all the US debt they hold, they would be getting Alaska for about $2 billion per acre.  Sounds a little high to me, so they might want Hawaii, Wake Island, and any ohter US controlled islands in that area too.  Hawaii would have no resource value to speak of, but immense value from a military standpoint, putting Russian / Chinese military bases (and missiles) within 2,000 miles of the west coast, along with giving them effective control of the Pacific ocean.

Yep, sounds like a sweet deal they might want.

Mon, 01/07/2013 - 01:12 | 3128798 MyBrothersKeeper
MyBrothersKeeper's picture

He owns Greek swaps no doubt but got famous for using the same simple math for forecasting the subprime mortgage crisis.  He mad 590 M for his clients. He is more of a capitalist than a predator...everything he is doing is legal and risking the real assets of his clients and himself......unlike the banker/government schills who have a no rsk, 100% reward policy.

Mon, 01/07/2013 - 01:40 | 3128822 Freddie
Freddie's picture

I like Kyle Bass.  He took the time to understand the game and he plays it well.  I think if I were him, I would probably say less and keep a lower profile.   He almost gloats about Japan's disaster. I realize the politcians and Yakuza did it to Japan but that poor country is toast but so are we.

Mon, 01/07/2013 - 01:46 | 3128828 ekm
ekm's picture

Doing swaps is NOT investing. It's a zero sum game.

Kyle Bass was just smarter and luckier.

I agree with most of what he says, but I alwasys try to separate the real stuff form the bait.

Mon, 01/07/2013 - 10:20 | 3129248 secret_sam
secret_sam's picture

He wasn't that "lucky."  He just bought a hedge because it was so tremendously mispriced, and because it was his JOB.

Mon, 01/07/2013 - 10:41 | 3129303 cranky-old-geezer
cranky-old-geezer's picture



Doing swaps is NOT investing.

No, but it's gambling, and that's what everybody on Wall Street does these days.

KB doesn't get bailed out by the Fed if he loses.  Wall Street does.

Sun, 01/06/2013 - 22:10 | 3128432 MsCreant
MsCreant's picture

On a long enough timeline the ability to kick the can down the road drops to zero. The thing is they keep baffling us with bullshit and getting away with it. The corruption for most is burried/hidden by the narrative about America they hand us at birth and in school. God they want us to believe soooo bad. It is what keeps us under wraps, better than welfare, better than video games, dope, or porn. They will keep it up until folks can't eat, drive, or power their houses. They will keep cranking out spin after spin, story after story, engage program after program, until no amount of bullshit in the world will get everyone fed. Only then is it "on." 

Sun, 01/06/2013 - 22:23 | 3128474 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Fights will go on as long as they have to.

Sun, 01/06/2013 - 22:25 | 3128483 buzzsaw99
buzzsaw99's picture

I'm still bitter about the santa and easter bunny thing.

Sun, 01/06/2013 - 23:22 | 3128615 The Miser
The Miser's picture

Santa and the Easter Bunny have combined their efforts and are now called the US Government.   The Tooth Fairy is soon to join the conspirosy.   The Tooth Fairy now wants your guns.  The hell with teeth. 

Sun, 01/06/2013 - 23:29 | 3128634 Hulk
Hulk's picture

WhaWHats up with Santa and the Easter Bunny? Don't tell me they are fraudulent too !!!

Mon, 01/07/2013 - 04:02 | 3128925 Joe moneybags
Joe moneybags's picture

I'm still laughing at poster Yobob's post over at the Wallstreetexaminer site, where he said something like:

" I've been waiting over two months now for my 2013 Mayan Calendar.  What gives?"

Sun, 01/06/2013 - 22:30 | 3128502 trav777
trav777's picture

they've already got you believing things that are laughably false and you react to those who speak truth exactly the way they want you to

Mon, 01/07/2013 - 00:53 | 3128772 Miles Kendig
Miles Kendig's picture

If the can kickers were frogs they wouldn't be squirming so much trying to put the fun back into dysfunctional.

The power to the pumps is shorting out and I would suggest that it is not only on, but many of this crops attributes are already baked in.  Some of them seem to relate to flooding and wild rice.

The best of New Years to you!

Mon, 01/07/2013 - 01:06 | 3128787 MsCreant
MsCreant's picture

Really glad to see you posting out there. Saw a movie with some seals in it the other night jumping out of planes. Thought of you and wondered how you were doing...I know you were not Navy but still...The movie was an in house service thing, it was stunning. They can get boots on the ground anywhere in hours. That is what they don't want to give up.

Mon, 01/07/2013 - 03:12 | 3128834 Miles Kendig
Miles Kendig's picture

Great to catch you too.

Sun Tzu called it desperate or deadly ground for a reason.

When I was doing my airborne/ranger gig the standard was wheels up (with anywhere from 500-5000 personnel and equipment) to anywhere in the world via mid air refueling within 18 hours of getting the call.  The Army term for these kinds of operations is forced insertion.

And you're right, the whole thing from planning through execution is bell ringin' stunnin', even when things don't go quite right.....(1:22:25-1:23:40)

Every day I have hot/cold running water, hot food et al is a fantabulous day.  See ya around gun slinger

Mon, 01/07/2013 - 03:29 | 3128902 MsCreant
MsCreant's picture

My husband watches Black Hawk down a couple times a year. We saw it over the Christmas break! LOL!

Mon, 01/07/2013 - 11:52 | 3128915 Miles Kendig
Miles Kendig's picture

HAH!  Classic

Perhaps we'll manage to catch up again somewhere.


Mon, 01/07/2013 - 06:38 | 3129007 Disenchanted
Disenchanted's picture



The Army term for these kinds of operations is forced insertion.


So it's a rape...

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