This page has been archived and commenting is disabled.

The Fed's QE Exit Will More Than Quadruple Interest Costs For The US

Tyler Durden's picture


With the Fed now openly warning that there may actually come a time when the 'flow' stops; the most recent Treasury Borrowing Advisory Committee (TBAC) report has some concerning statistics for those change-ridden hopers who see a smooth Fed exit, deficit-reduction, and blue skies ahead.  While they are careful not shout 'sell' in a crowded bond market; hidden deep in the 126 page presentation are two charts that bear significant attention. The first shows what TBAC expects (given the market's expectations) to happen to interest rates in the US as the Fed 'exits' its QE program (taper, unwind, hold) - the result, the weighted-average cost of financing for the US government will almost triple from around 1.6% to around 4.3% over the next ten years. But more problematic is that even with CBO's rather conservative estimates of the growth in US debt over the next decade the USD cost of financing will explode from around $205bn (based on TBAC data) to over $855bn. Still convinced the Fed can exit smoothly?

As TBAC warns:

Treasury yields could reprice notably when the market is convinced that policy tightening is imminent

There is a risk that markets may overshoot to higher-than-fair yield levels due to:

  • Concerns about Fed portfolio unwind
  • Inadequate interest hedging in certain asset classes
  • Portfolio rebalancing by retail investors

Annual interest cost on public debt to increase more than 400% (from $205 bn in 2013 to $855 bn in 2023)

  • Main driver : Increase in WAC from 1.7% to 4.3%
  • Secondary factor : ~ 65% increase in stock of debt

Given the market's expectations for Fed tapering (or gradual tightening)...


The marginal cost of financing will rise significantly...


but with the sheer size of debt now (and growing), that will balloon the absolute cost of servicing US debt to over $850bn per year...


And just what happens to all those retirees - who need yield - who are being herded into stocks when Treasuries pay over 4.5%? Would seem bullish for bond flows... think Japan...

Charts: TBAC


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 05/01/2013 - 15:30 | 3519344 Ham-bone
Ham-bone's picture

Tyler said Fed QE exit- good one.

Wed, 05/01/2013 - 15:31 | 3519356 buzzsaw99
buzzsaw99's picture

Yeah, :chuckles:

Wed, 05/01/2013 - 15:38 | 3519400 ratso
ratso's picture

Who said anything about an exit?

Wed, 05/01/2013 - 15:45 | 3519418 FL_Conservative
FL_Conservative's picture

"...weighted-average cost of financing for the US government will almost triple from around 1.6% to around 4.3% over the next ten years."


More like 10 days....if not 10 hours.

Wed, 05/01/2013 - 15:50 | 3519450 NotApplicable
NotApplicable's picture

All I want to know is, what does Kevin Henry think about this?

Wed, 05/01/2013 - 15:54 | 3519465 rcintc
rcintc's picture

We all know the track record of the CBO....they are always spot on.....


Wed, 05/01/2013 - 15:55 | 3519467 Relentless
Relentless's picture

Kevin isn't paid to think

Wed, 05/01/2013 - 16:07 | 3519522 SamAdams
SamAdams's picture

if rates were to go up in a year or less, then that would remove dollars from circulation.  this would make the dollar worth more, therefore it would take fewer dollars to buy an ounce of gold.  we just saw a major sell-off in paper gold.  just something to think about.

Wed, 05/01/2013 - 16:32 | 3519538 Ham-bone
Ham-bone's picture

Fed just laid out criteria to increase and stated we meet that, message received.

Of interest - Copper is on the verge of collapse again at $3.06...I believe copper is about to say something real bad (ie, global fucking economy sucks) and I think Ben' about to be put to the test of how far QE can (effectively) go.

Wed, 05/01/2013 - 17:41 | 3519860 Panafrican Funk...
Panafrican Funktron Robot's picture

Been watching copper too, got as low as 3.04 today.  The 3 mark seems to be a pretty reliable line, the fact that it's even around this territory in spite of fiat deval is remarkable.  The last time copper was this bad was during the 2011 debt ceiling crisis, and back in 2010 with the May flash crash.  

Thu, 05/02/2013 - 08:31 | 3521756 andrewp111
andrewp111's picture

By analogy to stellar evolution, the economy is already off the main sequence, and Ben will soon exhaust the current He burning phase. Will we see a collapse to a white dwarf, or will it go through the carbon, neon, oxygen and silicon burning phases and end in a supernova?

Wed, 05/01/2013 - 16:15 | 3519549 James_Cole
James_Cole's picture

Interest rate hike would be the death of gold. But also the death of western 'economy' so going to be interesting to watch how they square this circle...Again, I always come back to Boston. Seeing how that went down it looks like the empire has their plans worked out pretty well and the population is very much happy to go along. 

Wed, 05/01/2013 - 16:19 | 3519572 fonzannoon
fonzannoon's picture

James that's where you are wrong. interest rate hike would be the death of the western economy (which is dead already) but the death of the dollar would not be negative for gold. quite the contrary.

Wed, 05/01/2013 - 16:25 | 3519574 SamAdams
SamAdams's picture

Agreed.  In an economy where real growth is negative, removing dollars will only add to the pain.  And if the agenda is to accelerate the destruction of the US economy and American standard of living, then this is just the ticket.  Meanwhile, citizens who bought gold will begin selling at a loss to those bankers who need physical to return to certain governments.

Wed, 05/01/2013 - 16:27 | 3519583 fonzannoon
fonzannoon's picture

the destruction of the US economy would result in a currency crisis. when you have a currency crisis your currency does not appreciate against gold. Stop equating higher rates (growth) with higher rates (crisis). Two very different things.

I'd argue that as people go broke you see black markets everywhere before people sell gold to bankers. But I may just be speaking for myself.

Wed, 05/01/2013 - 16:40 | 3519639 TeamDepends
TeamDepends's picture

That's right.  As things unravel why sell gold to pay "debts"?  Better to meet them at the door with your pump shotgun ready to pump 'em full of lead wait a sec is this thing on oh well

Wed, 05/01/2013 - 16:47 | 3519658 SamAdams
SamAdams's picture

if you take money out of circulation, there is not enough to meet the demand.  someone loses a job, house, farm...  only the principal exists, not the interest.  that is the scam, that it is how it is played.  low interest rates, then high interest rates which essentially trades nothing (bankers notes) for real assets (the farm).  this does not destroy a currency, but it does create a recession and transfer wealth from productive to non-productive sources. 

we are currently in the boom as funny as that sounds.  it will seem a lot less funny when they crank up the rates....


Wed, 05/01/2013 - 17:24 | 3519792 James_Cole
James_Cole's picture

low interest rates, then high interest rates which essentially trades nothing (bankers notes) for real assets (the farm).  this does not destroy a currency, but it does create a recession and transfer wealth from productive to non-productive sources. 


It's like fishing with a big net, fish are ready to be reeled in. 

In case people haven't noticed, there are different rules for different entities. Average Joe is not at the beneficial end...

That said, hiking interest rates in this economy - hard to imagine it working out peacefully....but pretty clear .gov is aware and prepared for that. 


Wed, 05/01/2013 - 17:33 | 3519830 FL_Conservative
FL_Conservative's picture

I think Sam Adams drank a bit too much before he started posting.

Wed, 05/01/2013 - 16:28 | 3519593 akak
akak's picture

James Cole said:

Interest rate hike would be the death of gold.

Well, the hike in the Fed funds rate from 1.0% in 2004 to 5.25% in 2006 certainly did not seem halt the upward progression of the price of gold in the slightest, although other factors could have been in play then.

More fundamentally, one must distinguish between nominal interest rates and REAL interest rates.  If long-term interest rates rise to 4 or 5%, but REAL 'inflation' (dollar debasement) is running even at the same 5-6% that it is at today, much less higher, then that rise in nominal interest rates might still mean little or nothing in the grand scheme of things as far as the price (and value) of gold goes.

Wed, 05/01/2013 - 17:45 | 3519891 orez65
orez65's picture

If rates go up there will be panic selling in the bond market leading to hyperinflation.

The Fed is checkmated, the dollar collapses if they keep printing and it collapses if they let interest rates rise.

There is no solution except for default through inflation. 

Wed, 05/01/2013 - 16:57 | 3519694 Bunga Bunga
Bunga Bunga's picture

FED QE exit? Free market for bond rates? Give me a break.

Wed, 05/01/2013 - 15:44 | 3519433 buzzsaw99
buzzsaw99's picture

word cloud:

exit - 2

unwind - 1

tapering - 1

Wed, 05/01/2013 - 15:51 | 3519451 onewayticket2
onewayticket2's picture

Forecast: strong headwinds with an increasing possibility of a complete sh!t storm (aka: brown out) coming.

Wed, 05/01/2013 - 16:06 | 3519508 B2u
B2u's picture

Exit?  The will use a revolving door which always points to an exit but never stops to exit.

Wed, 05/01/2013 - 16:34 | 3519611 max2205
max2205's picture

We'll all be dead and buried when they let tates go up


Keep moving

Wed, 05/01/2013 - 16:54 | 3519690 blindman
blindman's picture

exit shmexit.
when the time comes, ... ahhhh
15 minutes, no more.
100 % confidence and u can take that
to the bank. trust me.
the check is in the mail and, no,
I don't know what that is in your mouth.
read the fine print, it now is ours and
you have a
good day sir.

Wed, 05/01/2013 - 15:40 | 3519358 hedgeless_horseman
hedgeless_horseman's picture



Tyler, what part of in perpetuity do you not understand?

Here is young Bernank performing an early experiment in monetary policy.


Wed, 05/01/2013 - 15:38 | 3519399 philosophers bone
philosophers bone's picture

Exactly.  Keep issuing longer and longer term bonds (100 hears), then stuff them in sheeple investment accounts.

Wed, 05/01/2013 - 15:49 | 3519456 hedgeless_horseman
hedgeless_horseman's picture



Yes, that is the mirrors part, but don't forget the smoke.

Wed, 05/01/2013 - 16:20 | 3519569 Overfed
Overfed's picture

Every time I see one of those idiots trying to convince me that there's no inflation, I wanna start throwing shit and breaking things. They're lying through their fukkin' teeth, but not one MSM shill will call them out on it.

Wed, 05/01/2013 - 15:49 | 3519453 NotApplicable
NotApplicable's picture

Well, that's a relief!

I thought it was gonna be another circle-jerk.

Wed, 05/01/2013 - 15:47 | 3519435 Croesus
Croesus's picture

That's gotta be bullish!!

Wed, 05/01/2013 - 16:05 | 3519512 Randall Cabot
Randall Cabot's picture

We're doomed!

Wed, 05/01/2013 - 16:26 | 3519590 Handful of Dust
Handful of Dust's picture

Bullish for mortgage rates.....and therefore, house prices....

Wed, 05/01/2013 - 18:52 | 3520186 CheapBastard
CheapBastard's picture

Shiller predicts another 20% drop...i suspect he is underestimating that drop just to be polite....more like 40% in the forecast.

Wed, 05/01/2013 - 19:40 | 3520379 gatorengineer
gatorengineer's picture

wont happen until AFTER the 2016 presidential... Period

Wed, 05/01/2013 - 15:31 | 3519352 madcows
madcows's picture

Debt don't matter.

But, interest rates do.

Wed, 05/01/2013 - 16:00 | 3519493 McMolotov
McMolotov's picture

It's not the heat, it's the humidity.

Wed, 05/01/2013 - 15:32 | 3519353 whisperin
whisperin's picture

Just in time for those FRN's!!! BoooYa!!!

Wed, 05/01/2013 - 15:37 | 3519394 DosZap
DosZap's picture

There is NO exiting the current system, Epic Fail, either choice.The sheeple may not get it,WE do.

Wed, 05/01/2013 - 17:00 | 3519705 Miffed Microbio...
Miffed Microbiologist's picture

The sheeple around me are quite happily picking up the flapping fish on the beach. I pointed out this was not sustainable and the only comment I got was " Look who's talking... Gold Girl. Enjoying your losses?" I smile and nod. " Yes, you are all a lot smarter than I. "


Wed, 05/01/2013 - 17:04 | 3519721 espirit
espirit's picture

Hang in there MM. 

Wed, 05/01/2013 - 17:46 | 3519892 StychoKiller
StychoKiller's picture

Hope you have a coupla friendz (Smith&Wesson) to defend yer stash when those good buddies remember you might have some Au/Ag...

Wed, 05/01/2013 - 21:31 | 3520766 Miffed Microbio...
Miffed Microbiologist's picture

Thanks esprit & SK,

My reasons for holding ag and au are long term so day to day price fluctuations really don't bother me. My reasoning is still sound to what I'm trying to accomplish. However, it's really tiring being the butt of everyone's joke and, yes, sometimes I get a perverse wish for the whole shit pile to come crashing down just to say I told you so. But, really I dont desire that to happen. I don't think too many of us can really appreciate what that would mean. After reading what happened in Argentina during their economic collapse, I ve been humbled.

Yes, I have quite a few friends to help me guard my pile( LWRC, Springfield Armory, Winchester). How can you have one and not the other? Funny thing, one of the sheeple the other day asked me where I kept my stash ( the audacity!). I told her I could show her the locations up the Cali coastline but she'd have to go with me on my Hobie Cat and suffer numerous capsizings. The look on her face told me any lingering thoughts of my sanity were now truly questionable.


Wed, 05/01/2013 - 18:21 | 3520061 HardAssets
HardAssets's picture

Miffed MicroBio - - - I hear you.  Few choose to think for themselves. Often the ones with the most formal education are the most resistant to new knowledge. They are specialized technocrats/technicians with a very narrow focus. They are often 'A students' who are very competent at learning . . . what is wrong.

No one can predict what will happen next week or next month. But we can educate ourselves on the nature of the world and act accordingly within a society with an economic environment that will not remain as in the past.

Wed, 05/01/2013 - 21:49 | 3520821 Miffed Microbio...
Miffed Microbiologist's picture

Funny you should mention this. I was reading a novel describing the conquering of a society. One character was determined to focus on the highly educated intellectuals as the place to start. The other character laughed heartily at the suggestion pointing out these hyper educated people have already give themselves over to the authoritarian powers and are simple to sway. The real problem lay in the pragmatic simple classes who weren't so co opted and therefore must be brutally subdued.

I've got to take up light reading again. Too much reality can be so tiring and depressing.


Wed, 05/01/2013 - 15:34 | 3519355 Debtonation
Debtonation's picture

I wouldn't loan the Federal Government money at any yeild

Wed, 05/01/2013 - 15:41 | 3519414 TeamDepends
TeamDepends's picture

Good thing (for them anyway) they've been TAKING it for over a century.

Wed, 05/01/2013 - 15:58 | 3519481 Goldilocks
Goldilocks's picture

Good Thing - Fine Young Cannibals (3:31)

Wed, 05/01/2013 - 15:33 | 3519366 fonzannoon
fonzannoon's picture

How about if the fed indicated they are going to begin to tighten and EVERYONE tries to sell their bond fund AND their stocks at the same exact time?

I can't wait to see the nanex chart of that.

Wed, 05/01/2013 - 15:37 | 3519371 JJ McApe
JJ McApe's picture

a smooth fed exit... a smooth Fed exit???

lets just see when everyone looks for a smooth exit out of stocks lool

soon everyone will realize that the boom over the last 4 years was only "borrowed" and the stock market will get hit very hard imo.

haha, better sell now and take some profits. or at least as long as the rates are near zero...

Wed, 05/01/2013 - 15:40 | 3519398 fonzannoon
fonzannoon's picture

It will be smooth for GS and JPM as they will have been short the market, short treasuries and have snapped up as much bullion as possible. For Joe sixpack it might hurt a little.

Wed, 05/01/2013 - 16:36 | 3519620 kill switch
kill switch's picture

As smooth as a stucco bathtub.

Wed, 05/01/2013 - 15:36 | 3519387 buzzsaw99
buzzsaw99's picture

How about if the fed indicated they are going to begin to tighten...

A simple "Boo!" would suffice.

Wed, 05/01/2013 - 15:41 | 3519402 Divided States ...
Divided States of America's picture

9:30:00 Market Opens

9:30:01 First Circuit Breaker (10%) triggered

10:30:01 Market Reopens after 1 hour halt

10:30:02 Second Circuit Breaker (20%) triggered

12:30:02 Market Reopens after 2 hour halt

12:30:03 Third Circuit Breaker (30%) triggered. Market halted for rest of day.

Markets opened for a total of 3 seconds.

Call it a day and time to go home. Repeat process the next day. NOW that is whats gonna happen fonz.

Wed, 05/01/2013 - 15:50 | 3519457 uno
uno's picture

outlaw shorting after bell the previous day

Wed, 05/01/2013 - 15:56 | 3519460 fonzannoon
fonzannoon's picture

and thats if it even opens at all.

Immediate capital controls. 

Wed, 05/01/2013 - 16:04 | 3519510 IridiumRebel
IridiumRebel's picture

You really think the ALGOS/Johnny 5s will allow a whole second? It'll be done in .05 seconds. You won't even hear the bell ring....

Wed, 05/01/2013 - 16:20 | 3519551 wee-weed up
wee-weed up's picture

Divided States ...  If the selling is that intense - down 10% every sec...

I think the system will suffer a complete meltdown and cease to function. And it might even be intentionally sabotaged by TPTB.

"Oh yeah... the orthogonal discombobulator is completely fried. They're one-of-a-kind, don't ya know... system's probably gonna be down for weeks... maybe months!"

Wed, 05/01/2013 - 20:09 | 3520480 Diogenes
Diogenes's picture

You mean the Retro Entabulator


Wed, 05/01/2013 - 15:37 | 3519373 IridiumRebel
IridiumRebel's picture

Talk about hammering PMs....lets do it! Come on! Do it! I'll finally get to use my food store.

Wed, 05/01/2013 - 15:37 | 3519374 MarsInScorpio
MarsInScorpio's picture

If you ever needed some proof that the FED can't exit QE4EVA, this is it.


It also demonstrates that the cost of borrowing can only go up if CBs stop pumping; but not just up - way up - as in break the Treasury, and the TBTF banks, up.


Remember who owns the FED.


Therefore, the FED will not exit. The hopium dealer can't shut down his drug business without destroying himself in the process.


Wed, 05/01/2013 - 15:57 | 3519488 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

They have no choice since the drugs will kill them also unless the government goes full out totalitarianism (which is a real possibility when the money runs out, socialism is just passive aggressive communism waiting to go full blown communistic when the money runs out)  which means the guns come out on both sides at that point. The FED has basically boxed themselves into a corner, there is no easy way out but they have to try, they are done and no matter what happens history is going to look down on them as the textbook case on how to destroy a country and global economy through monetary policy. That is going to be Benny and FEDs legacy regardless of whatever the true intentions were.

Wed, 05/01/2013 - 16:03 | 3519499 centerline
centerline's picture

The Fed will carefully move the blame onto the politicians.  The politicians will in turn blame the people as it all unravels.

Wed, 05/01/2013 - 16:32 | 3519597 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The politicians most certainly deserve their share of blame in this shit show so do we the voters for sitting on our fat asses and doing nothing while everything unravels before our eyes. One thing we can absolutely do is make sure this is documented for future generations as a warning about how destructive debt based fiat and speculation aka derivatives are just as deadly as nuclear weapons. Maybe future generations will treat this as what they are weapons like guns and bombs just of the economic variety.

Wed, 05/01/2013 - 18:16 | 3520016 MarsInScorpio
MarsInScorpio's picture



Benny and the FEDs, as opposed to Benny and the Jets?


Good post on your part - Cold-BloodedReality 101.



Wed, 05/01/2013 - 15:37 | 3519376 pq7
pq7's picture

Who is at the other end of the recent wave of IR swaps and forwards?

Wed, 05/01/2013 - 15:47 | 3519441 NotApplicable
NotApplicable's picture

You are, duh.

Via proxy, of course.

Wed, 05/01/2013 - 15:57 | 3519480 Ban KKiller
Ban KKiller's picture

Could it be....the major banks and other central banks? Spoke to my chickens, the oracles, they said "bullish bullshit" to the chicken scratch market. 

Wed, 05/01/2013 - 15:38 | 3519384 AldoHux_IV
AldoHux_IV's picture

Are you M.A.D. bro? How mutually assured destruction works-- front run the cancer.

Wed, 05/01/2013 - 15:38 | 3519385 Oldballplayer
Oldballplayer's picture

Wow. Interest rates might go up? Whodda thunk it. Imagine what THAT will do to the new class of sub prime borrowers the government is trying to suck in again!

Time to pay off the credit cards.

Wed, 05/01/2013 - 15:41 | 3519404 DosZap
DosZap's picture

Time to pay off the credit cards.

If your carrying a monthly balance your already getting smashed by 18-30%.If you cannot pay it off when billed, do not use one.

Wed, 05/01/2013 - 15:56 | 3519474 NotApplicable
NotApplicable's picture

Yeah, if any rate ever goes up, it will be the "prime" rate, and everyone will suddenly remember that their cards were converted to floating rate (otherwise you'd lose the account as an active reference on your credit score by keeping your old rate on the old balance).

Wed, 05/01/2013 - 16:17 | 3519564 noless
noless's picture

i got a credit card not too long ago because fuck it, due to an accounting glitch based on an automated transfer schedule my account on the card has now been positive for several months(accidental, how the fuck would i have known that could happen?). still wating on my interest payments of course.. gonna leave the balance there indefinately to see how it pans out.

Wed, 05/01/2013 - 16:34 | 3519613 Oldballplayer
Oldballplayer's picture

Well, I got two kids in college. I have two relatively small balances on my business cards. Nothing serious. I should have paid them all before. I know, I know. For the past five years it's been debit cards and Amex.

Wed, 05/01/2013 - 15:43 | 3519429 lolmao500
lolmao500's picture

The retirement funds with their ``super safe assets`` are gonna get raped...

Wed, 05/01/2013 - 17:51 | 3519922 orez65
orez65's picture

"... super safe assets ..."

Also known as bonds with yields close to 0%.

The perfect bond bubble!

Wed, 05/01/2013 - 19:48 | 3520397 gatorengineer
gatorengineer's picture

I dunno there is something about CALPERS being 100% in Tbills by the time the shit storm hits that makes me smile....

Wed, 05/01/2013 - 15:40 | 3519395 HpDeskjet
HpDeskjet's picture



If QE stops, risky assets will tank, not bonds. Rates will stay at current levels or even lower due to everybody selling "growth" investments and running for "safety"

Wed, 05/01/2013 - 15:45 | 3519422 fonzannoon
fonzannoon's picture

We are fucked either way. It will be a currency crisis this time ad it will take everything with it.

Wed, 05/01/2013 - 16:13 | 3519540 bagehot99
bagehot99's picture

Bonds won't tank, when IR goes up? Errr, yes, they will.

Didn't you listen to the nice man when you studied for your 7, telling you about the inverse relationship between bond prices and yields? Well, it's real. 

Interest rates apply to both lenders (savers) and borrowers. 

Wed, 05/01/2013 - 16:34 | 3519612 HpDeskjet
HpDeskjet's picture

Duh... The thing is, rates won't go up. The only reason US 10y treasury rates are not yet at 0,5% (or lower) is because the FED started QE! QE = growth = buy risky assets in the mind of investors. The second people start to worry about less QE, they will run for the return OF capital (=bonds) instead of return ON capital.

Thu, 05/02/2013 - 08:07 | 3521698 andrewp111
andrewp111's picture

QE is just E Pluribus Fool'Em

Wed, 05/01/2013 - 15:39 | 3519396 kito
kito's picture

With the Fed now openly warning that there may actually come a time when the 'flow' stops........oh it will stop alright, but it wont be voluntary................................

Wed, 05/01/2013 - 15:40 | 3519409 fonzannoon
fonzannoon's picture

Kito they have openly warned forever there may actually come a time when the flow stops as they consistently increase the flow. Watch what they do, not what they say. That being said...that day will come. I sure hope I am on the fed early distribution list for that meeting.

Wed, 05/01/2013 - 15:43 | 3519424 kito
kito's picture

fonz, you may be on other "watch" lists like the rest of the zh-ers, but it wont be the one that gives you the heads other news, francis sawyer thinks we are getting married....i told him i dont follow the jason collins lifestyle....not that there is anything wrong with it......................

Wed, 05/01/2013 - 15:46 | 3519445 fonzannoon
fonzannoon's picture

me neither but perhaps Francis has a twang of jealousy and may be projecting some inner feelings of his own?

Wed, 05/01/2013 - 15:49 | 3519448 kito
kito's picture

I believe its my jewishness that attracts him..........................

Wed, 05/01/2013 - 15:54 | 3519464 fonzannoon
fonzannoon's picture

you don't look druish

Wed, 05/01/2013 - 15:58 | 3519484 kito
Wed, 05/01/2013 - 15:44 | 3519407 lolmao500
lolmao500's picture

And that is the best case scenario on interest... and no way it'll take 10 years. Maybe 10 months. Or 10 weeks... Or 10 days. Lulz.

Wed, 05/01/2013 - 15:43 | 3519410 W T F II
W T F II's picture

They will partially 'forgive' the debt in the "re-Calibration" to come shortly....This is just a pre-reality game, is all....!!

Wed, 05/01/2013 - 16:42 | 3519640 noless
noless's picture

even if the fed writes off their portion of debt held , others holding UST will still seek payment, and it will be de(re)basement of the dollar. cutting so many liabilities either at once, or by gradual idulution would spark 


scarcity on the secondary market(assuming a real market in bonds post fed, whatever)

buying up no/low yield now worthless debt (fed after they negate their holdings)

if direct buy hyperinflate due to lack of investment vehicles and zero yield cash

if forgive at par by either firms or sovereign holders of debt, why? and give up an asset which at least competes with inflation in the currency, if only barely? would they just keep the bullshit zirp/nirp on their books or convert by any means necessary?


i can see no scenario where the current obligations of the treasury are not made null, thereby taking the currency with it..


sorry for the half formed bullshit, but i honestly don't see the scenario where interest rates rise and there isn't some significant flight out of current underpriced holdings.

Wed, 05/01/2013 - 15:40 | 3519411 de3de8
de3de8's picture

It's already been said by all prepared....will likely be uglier than you imagine.

Wed, 05/01/2013 - 15:41 | 3519416 The Dancer
The Dancer's picture

We might even have to do away with Obummer lol lol lol lol lol

Wed, 05/01/2013 - 16:56 | 3519693 noless
noless's picture

i've been trying to figure out if im poor enough to get an exemption from the "penalty", im still not sure. bizarro world, won't be able to afford health care that means fucking anything, but still have to pay a tax so someone else gets theirs for free. lame. on top of that already paying taxes out of my check for the program that im ineligible for.. a real thing of beauty, that.

Wed, 05/01/2013 - 15:42 | 3519421 Let The Wurlitz...
Let The Wurlitzer Play's picture

Actually, when you default on your your long term debt you drastically reduce your financing costs.


Wed, 05/01/2013 - 15:47 | 3519434 fonzannoon
fonzannoon's picture

default on our debt? Eh?

After all these years we are still falling for the idea that the fed will tighten?

Wed, 05/01/2013 - 16:58 | 3519697 noless
noless's picture

who would hold FRNs in that scenario? when their creation mechanism is no more?

Wed, 05/01/2013 - 15:43 | 3519425 kevinearick
kevinearick's picture

Bridge Construction & Demolition

The History of empires is the history of demographic ponzies supplanted by bridges to easily exploitable resources, and natural replenishment following human viral replication and associated die-offs. Lack of geography and ineffective empire technology has eliminated the ponzi and exploitation economies as the means to further fuel the current virus. That leaves death, through disease, pestilence, war, and starvation. Or, we could bring the economy into equilibrium with nature, like every other stable critter on the planet.

Empires employ money backed by military technology as a positive feedback mechanism to fuel growth, printing to pull demand forward and lock future generations into the empire status quo, with the resulting debt, issuing the credit debt as current income through congressional corporate misdirection to define the social caste system. The more behavior reinforces the empire mythology, the greater the income debt, and the greater the impetus for each social strata to create artificial barriers to entry and exit, each competing internally and externally, for debt. Monetary expansion and austerity are simply reward and punishment to ensure empire ponzi debt participation.

The dumber the empire gets, the greater the barriers become, the more circulation contracts, the more the majority denies, the more imbeciles are promoted as scapegoats, the more desperate circumstances become, and the more insane the propaganda becomes in the education system. The majority is trying in vain accordingly to protect its position with nearer term decisions, and the only choice it accepts net, among bad choices, is a single global economy, eliminating marriage as an alternative, with an increasingly pronounced bipolar response, in an artificial feast and famine economy of increasing income disparity.

Empires are specifically designed to implode if you allow them to run on auto, because all the resistors can do is copy, paste and re-order, what is now called best-business-practice. In the meantime, labor prototypes bridges to the future and is distilled out accordingly. Love cannot exist within an empire, but an empire cannot live without labors of love.

The empire is an inverse implicit battery, with many motors / resistors / corporations requiring human circulation, made of the majority, immobilized by its own behavior, as derivatives in time. Individuals traveling through the system ‘electrify’ it, and may adjust R, C, and L, resonance, to tune in and out perception. Labor begins from the to-be. Capital attempts to maintain the as-is.

Real investors, those remaining few capable of reaching threshold catalysis, to transform capital as required, will not accept currency debt, or PM, from failed cultures, and all the nation/state empires have failed. All those artificial barriers to entry and exit represent an implicit battery, that must be reconfigured, and empire time is running out. Like flies at the end of season, the bridge will fail, along with the middle class it supports globally.

There will not be one global economy, for reasons which are becoming readily apparent, even to the majority; there will be many global economies. The majority can exhaust itself through replicative breeding or war, printing money to feed artificial consumption credit until discharge. At the end of the cycle, Navy will be a utility regardless, and the accompanying technology may be rolled out directly as production or beginning with the final act of war. Careful with whom you choose to declare war.

Labor cannot tolerate taxation beyond 10%, or government control of its development, and will defer to family investment accordingly. You cannot own your family, but you do have inalienable property and liberty rights in the investment, along with continuing provision, as all of History attests.

An empire is like the gauntlet in First Knight. Be prepared to meet your maker and account for yourself at all times. If majority’s government chooses to cross the line with Family Law to enforce jurisdiction over the future, regardless of its convenient identity, adjust the gauntlet to turn on itself, like a dog on its stupid master. First you isolate the floors, then you remove the circulation supports, and then you let nature take care of the rest.

You have the as-is and the to-be. How you get there is up to you. The Internet is simply an abutment vortex, for a bridge to nowhere, unless you see what the majority cannot. Historically, the majority simply replaces the heads of the hydra as required to preserve itself, wh-s and their n-rs wherever you go, chasing government money into every crevice. They cannot listen, because they simply do not have the capacity to reach your frequency, and adding monkeys with ladders doesn’t help. All politics is local, aggregated. Adjust gravity accordingly to suit your development.

Empires are for single people, and their civil marriages, never-neverland. The barriers to employment are coming down, the easy way or the hard, you decide, “ children born not of natural descent, nor of human decision or of husband’s will, but born of God…I send you to reap what you have not worked for. Others have done the hard work, and you have reaped the benefits of their labor.”

Wed, 05/01/2013 - 15:56 | 3519475 RSBriggs
RSBriggs's picture


Wed, 05/01/2013 - 17:16 | 3519752 noless
noless's picture

so essentially we're drowning, the oxygen levels in the blood of the economy cannot meet the demand of central neural function... and grasping at water to pull ourselves up..


all complex systems require barriers, how well would your lungs work if they were suddenly an integrated system with your intestines. there are borders for reasons, because some specific functions require specific circumstances to still function as necessarry, that isn't to say that at some point two divergent functions/systems cannot infact be merged for the benefit of the body, but it cannot be done with a hacksaw and a scalpel, only time or reasoned influence..


if this was not a preformed copypasta then awesome. i feel that you are treading, almost grasping the rope, with several cogent points that once melded will be far more coherant than what you appear now as.

Thu, 05/02/2013 - 06:33 | 3520052 blindman
blindman's picture

so it is and then there is this,
in the form of a question.
do you know what the Chinese have their armed forces
doing as they are not engaged in any "wars"?
here I am waiting to give u time to wonder.
since I am no good at waiting and surprises.
I have been told they are
assigned to go forth and .....
find the gold deposits within the
countries borders.
weird, no?
the commies are different than the free market
imperialists at least in that respect.

Wed, 05/01/2013 - 15:43 | 3519431 Seasmoke
Seasmoke's picture


Wed, 05/01/2013 - 15:47 | 3519438 Fix-ItSilly
Fix-ItSilly's picture

So debt costs will soar?  Just mail in the keys and continue squatting.

Wed, 05/01/2013 - 15:47 | 3519439 brucyy
brucyy's picture

who cares ? let's just sell 400 tons of golds in three days , you'll have your headlines about how the fed has total control ...

Wed, 05/01/2013 - 15:48 | 3519443 Stinko da Munk
Stinko da Munk's picture

Wow, looks like a great time to go all in on equities! 

Wed, 05/01/2013 - 15:51 | 3519452 jjsilver
jjsilver's picture

That interest is theft, the private fed has no right to interest for issuing our currency, they have no skin in the game. This should be the only focus, a criminal cartel has the world by the balls because we have let them control the currencies. What was that quote sabbatean Rothschild once said about controlling the money

Wed, 05/01/2013 - 15:54 | 3519476 CaptainSpaulding
CaptainSpaulding's picture

Blame those confounded goldsmiths

Wed, 05/01/2013 - 15:56 | 3519462 q99x2
q99x2's picture

Good luck getting anything from me. I take that back. On second thought I do have something to give them.

Wed, 05/01/2013 - 15:51 | 3519463 One Ton Lady
One Ton Lady's picture

Once upon a time long ago,  Roman legions conquered a strange land to the east known as Judea.  Once there Roman authorities heard strange tales of how men could create money out of thin air. This strange idea was known as interest. Things in this world changed forever, for the bad one might add. Then one day many years later, the strong nation known as Rome, the center of the world withered away under a avalanch of debts to the same people owed to the same people who told them about this concept in the first place. That's my story and I am sticken to it.

Wed, 05/01/2013 - 17:16 | 3519762 TrustWho
TrustWho's picture

Ton, do you practise Islam? Islam attacks usury.

Wed, 05/01/2013 - 17:14 | 3519763 TrustWho
TrustWho's picture

Ton, do you practise Islam? Islam attacks usury.

Wed, 05/01/2013 - 15:53 | 3519470 kchrisc
kchrisc's picture

Like exiting off of I-95 at 70MPH on a black-ice slick ramp--nice and smooth until curb, flip and roll.

Got to love these gov and bankster pricks--lunch is free for them with us paying on our knees.

However, I am not going to my knees and the guillotine will pick up the check.      hujel

Wed, 05/01/2013 - 15:56 | 3519473 Goldilocks
Goldilocks's picture

Ella Fitzgerald - Blue Skies (3:25)

Wed, 05/01/2013 - 15:57 | 3519477 Smuckers
Smuckers's picture

Can someone then photoshop Bernanke's mug on that gutter-Kermit graphic....

Wed, 05/01/2013 - 15:58 | 3519483 bnbdnb
bnbdnb's picture

Looks like the 65+ crowd finally took their queue and started selling in May.

Wed, 05/01/2013 - 15:57 | 3519489 polo007
polo007's picture

According to Bank of America Merrill Lynch:

FOMC: Standing in place

Fed buys itself time

In an implicit acknowledgment of the softening data, the FOMC today explicitly indicated that it is “prepared to increase or reduce the pace of purchases” as the labor market and/or inflation outlooks change. Several Fed officials in the week prior indicated their willingness to ease if data disappoint persistently. With the Fed missing on both sides of its dual mandate, we expect the Fed to continue to back away from a quick tapering to QE3. We expect the Fed will maintain the current purchase pace into early 2014, then taper gradually.

Little change in the outlook

The FOMC did not make much of a change to their assessment of the economy, citing a “moderate expansion” in activity and “some improvement, …on balance” in the labor market, despite a weak March employment report. They noted that fiscal policy “is restraining” growth (in March, it had “become somewhat more restrictive”). Modestly surprising was no change in their inflation assessment, despite their preferred PCE measure rising just 1.0% yoy in March. They retained their assessment of downside risks to the outlook.

Debate over purchase pace…

The main change to the statement was to open the door to adjust the pace of purchases, both up and down. The minutes, released in three week’s time, should give more indications of how the views of FOMC members are evolving on this issue. While our base case remains that the Fed will buy at the current pace well into next year, we see a growing chance that the Fed will scale up its buying before it tapers it lower.

… and over timing

Not only did the FOMC open the door for adding to their balance sheet at a faster pace, the support for an early taper among FOMC members has likely faded, in our view — again, the minutes will tell. Some have suggested the Fed should taper soon, to convince the markets that a stronger recovery is underway. We disagree: the Fed has stated that they will wait for labor market conditions to “improve substantially”; jumping the gun would be inconsistent with their past behavior and their public statements, and risks their credibility. Moreover, as the Fed does not want the markets to see this as a signal of the start of the broader exit, a gradual tapering seems more likely to us than a quick end. We expect that the Fed will start to slowly scale back the pace of QE3 purchases by April next year, when the accumulated data should point to a real recovery, and will conclude buying by October 2014. But if growth and, especially, inflation continue to surprise to the downside, the risk that the Fed will buy more would rise.

Wed, 05/01/2013 - 15:57 | 3519490 youngman
youngman's picture

Just think when the Feds starts to will everyone else....but you can bet GS and JPM will have already traded out and into shorting it...inside info of course....but it will be stopped...circuit will crash....and losses will be huge...i wonder what the ratings agencies will do....downgrade the will be on top of it...and what about the politicians..I can hear them screaming to whos fault it is....but not cutting fact they will have a new program to save the bonds.....crisis is...not be be wasted....what will happen to gold and silver...i suspect it will go down to as people will sell that need cash....but foreigners will buy it all....and the Comex will default if it hasn´t already by will be an interesting few days...and i think it will be over in a few days....

Thu, 05/02/2013 - 08:02 | 3521679 andrewp111
andrewp111's picture

The Fed is never going to sell. They will hold to maturity. Or maybe not. They might start selling when the SHTF in Europe and the flight capital needs treasuries to buy.

Wed, 05/01/2013 - 16:03 | 3519505 Zer0head
Zer0head's picture

the motorcycle is QE ending

the rest speaks for itself


and fucking youtube every vid now has an add upfront -- this is going to kill it IMO

Wed, 05/01/2013 - 16:05 | 3519507 TrustWho
TrustWho's picture

Oh, the Web we weave! The Fed wants more fiscal stimulus which will drive larger deficits and larger federal debt. A faster growing economy increases inflation and interest rates. Since federal debt has a duration under 5 years, rising interest rates could easily add $50 billion to annual deficit. This debt will suck the marrow of the US economy. Could the Fed maintain control with large negative real interest rates? If yes, the Treasury would be defaulting on the debt in real terms, but the US dollar will be cheaper than dirt.

Option #2 is austerity and downsizing, but requires Tough Love.

Wed, 05/01/2013 - 16:09 | 3519517 Tombstone
Tombstone's picture

Benny will sharply increase QE by the end of 2013.  Eventually, interest rates will spike higher, sending the USSA into a monstrous financial crises.   But when?  I guess when all this socialist BS finally hits the fan.

Thu, 05/02/2013 - 07:58 | 3521668 andrewp111
andrewp111's picture

Benny will be gone in Jan 2014. So if he does as you suggest, it that his final parting hurrah?

Wed, 05/01/2013 - 16:12 | 3519534 Tie-The-Tubes
Tie-The-Tubes's picture

Take a common T bond fund - avg duration of T bonds = 20 yrs; if Joe Example buys shares of this fund and rates increased from where they are today by 1% you will have an approximate 20% loss of principle

Wed, 05/01/2013 - 16:15 | 3519541 Catullus
Catullus's picture

Seems a tad bit linear to be true.

Wed, 05/01/2013 - 16:16 | 3519544 polo007
polo007's picture

Record High

The S&P 500 climbed 0.3 percent to a record high of 1,597.57 yesterday as consumer confidence jumped and investors bet central banks around the world will continue their efforts to stimulate the economy. The bull market in U.S. equities has entered its fifth year, surging 134 percent from a 12-year low in 2009 on better-than-estimated corporate earnings and three rounds of bond purchases by the Fed.

Wed, 05/01/2013 - 16:18 | 3519565 yogibear
yogibear's picture

Bernankeson is telling the BOJ and Japanese government exactly what to do.

Bernankson is an arrogant  PhD from Princeton who studied and pointed out to Japan all the mistakes they made.

Bernankeson tells Japan to QE until it blows up. Then Bernankeson's successor will do the same.


Wed, 05/01/2013 - 16:20 | 3519577 TrustWho
TrustWho's picture

If these PhD's think inflation will stop at 2%, they are arrogantly stupid. What would Japan look like with 10% inflation?

Wed, 05/01/2013 - 16:27 | 3519582 Meat Hammer
Meat Hammer's picture

None of this matters.

There is a bigger plan.  They will either crash this bitch when they want to or when they feel that the plebs (non-ZH) are getting just a tiny bit wise to them.

Any talk of any of this having to do with GDP and/or unemployment (aka for the benefit of anyone who isn't a, or connected with, a bankster) is just foreplay for the inevitable lubeless ass raping.  

-Captain Obvious

Wed, 05/01/2013 - 16:26 | 3519589 sbenard
sbenard's picture

$850 billion -- nearly HALF of all individual income tax revenue!

But it will be far worse, because it will force the politicians to cut spending AND increase taxes! In other words, it will destroy the economy!

We are all slaves now!

Wed, 05/01/2013 - 16:31 | 3519596 web bot
web bot's picture

And with deficits and the debt out of control... this is THE END GAME. PERIOD.

Then watch what happens to Japan...

Wed, 05/01/2013 - 16:34 | 3519604 moneybots
moneybots's picture

It seems odd that the FED is openly warning of a day when flo ends, when the economy is at stall speed and needing more flo.

Wed, 05/01/2013 - 16:54 | 3519681 G_T_A_44
G_T_A_44's picture

It's called Jawbone.

Thu, 05/02/2013 - 07:56 | 3521664 andrewp111
andrewp111's picture

At some point the flo becomes deflationary and won't work at all anymore. The Fed won't exit voluntarily. They will just keep it going until something breaks, then it will stop.

Wed, 05/01/2013 - 16:32 | 3519608 blindman
blindman's picture

but, but .... it only takes 15 minutes !
lost the steam in the economy? the steam?
hmmm. do we really want steam? ...
60 Minutes Ben Bernanke Inflation
myth: we are printing money.
(the poor clown on acid)
"we can raise interest rates in 15 minutes,
...100% confidence."
oh my.
keep stacking ...
and shut up and drive.
additional crap ..

Wed, 05/01/2013 - 16:37 | 3519617 tip e. canoe
tip e. canoe's picture

now one should realize why all this RE is being scooped up for CASH.

think 30 year mortgages at 3.5% are low?  you ain't seen nothin' yet.

Wed, 05/01/2013 - 16:40 | 3519630 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

But ... my principle will be paid back 100% on my hoard of 30 year USTs !

Wed, 05/01/2013 - 16:42 | 3519651 Keynesian Mess
Keynesian Mess's picture

No, no.  Krugman says debt is not a problem!  He couldn't be wrong, could he?




Uh oh.




Move along, nothing to see here.

Wed, 05/01/2013 - 16:47 | 3519667 Alex Kintner
Alex Kintner's picture

If I was cynical I'd say the guys who have been dumping gold were tipped off that QE Exit was gonna be announced. Nah, that would be trading inside info and illegal.

Wed, 05/01/2013 - 16:50 | 3519673 G_T_A_44
G_T_A_44's picture

FED= 'Jawbone'.

There is No Way Out absent very, very grave consequences.

And, They are well aware.

Wed, 05/01/2013 - 16:56 | 3519689 Herdee
Herdee's picture

The further the government goes into deficit the further the debt will climb if the Fed bumps up rates.You bump up rates you kill the housing recovery.Government is going to get it's tax revenue from where?You push rates up and you murder employment.Remenber what Krugman doesn't want to hear.It is a huge structural and demographic problem this time.Manufacturing has already been gutted.The rate of job creation during a rising interest rate cycle would be very low or negative.The government would have to look for more taxes to support it's debt,further killing jobs.If they reduce pensions and other benefits it contracts the economy by building further mistrust of government.It's like Kyle Bass says about Japan,they're bond market is dependant on deflation.It's the same blueprint America is copying.One small whiff of the Fed unwinding and it will trigger a tsunami.They're afraid to take the step to wash-out the world's bad debt.It would put the world into a global depression.The longer the massive money printing goes on to support government spending programs only delays the day of reckoning.

Wed, 05/01/2013 - 16:57 | 3519702 Dre4dwolf
Dre4dwolf's picture

I dont get why people write articles about something that will never happen, the only way the Fed Will Stop its printing is if aliens attack wipe out china and then decide to leave the US alone forcing the world to come back to America for production and manufacturing.

The markets are flooded with cheap crap from china, its putting everyone out of business, China is even slowly putting themselves out of business for gods sake they are mass producing clones of empty cities all over China dozens of ghost cities the size of new york building "just for the hell of it" despite the lack of demand.... by the time anyone moves into any of the cities they would of become condemned.



The USA is reliant upon a dead financial sector (scam sector) of an economy that doesn't even add value to the economy anymore.... people are just surviving, sure everyone has a 55" LED glued to the wall, but what good is a  TV when your electric bill goes up 20% a year.


Thu, 05/02/2013 - 07:53 | 3521652 andrewp111
andrewp111's picture

China may eventually use those empty cities as prisons when they decide to expand and conquer more territory.

The only way aliens would destroy China and leave the US intact is if China purchased some technology from those aliens and then failed to cough up the gold required to pay for it.

Wed, 05/01/2013 - 17:06 | 3519706 blindman
blindman's picture

there is no money here.
the fed deals in bubble flow,
froth, that is all.
beware the winds and little insect creatures
that light upon that sheen, destroying
all your dreams.

Wed, 05/01/2013 - 17:11 | 3519745 First There Is ...
First There Is A Mountain's picture

Ultimately, debt jubilee on a global scale is the only solution (unless of course someone was intentionally unleashing destructive deflationary forces in order to facilitate the implementation of authoritarian rule or some such conspiratorial nonsense - wink, wink).

Wed, 05/01/2013 - 17:48 | 3519900 pitz
pitz's picture

Ummm who would want to be in treasuries when they've seen such massive capital losses when interest rates normalize? 



Wed, 05/01/2013 - 17:52 | 3519904 polo007
polo007's picture

In response to a deep financial crisis and recession, the Fed cut overnight interest rates to effectively zero in late 2008. It has also bought over $2.5 trillion in assets, more than tripling its balance sheet, to keep long-term rates low.

If the economy's fortunes do not improve, the central bank may well look for fresh ways to boost its support to the economy, and increasing the amount of assets it is buying is just one option.

The Fed could announce an intent to hold the bonds it has bought until maturity instead of selling them when the time comes to tighten monetary policy. Fed Chairman Ben Bernanke has already raised this as a possibility.

Policymakers could also set a lower unemployment threshold to signal when the time might be ripe to finally raise rates. Currently, the threshold stands at 6.5 percent, provided inflation does not threaten to breach 2.5 percent.

Research suggests such "forward guidance" about the future path of interest rates can have a strong impact on current borrowing costs, and one Fed official -- Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank -- has already suggested lowering the threshold to give the economy a boost.

Thu, 05/02/2013 - 07:48 | 3521647 andrewp111
andrewp111's picture

None of this matters. QE does not reduce unemployment. Low interest rates only stimulate the stock market. At some point it won't even do that. Why do you think Bernanke is leaving in January? The Fed is out of tools.

Do NOT follow this link or you will be banned from the site!