Posted on 08/15/2013 1:19:31 PM PDT by MosesKnows
It has been interesting to monitor and track the Dow Jones Average on those days when the Fed’s actions regarding Quantitative Easing is in the news. Lately the news is about whom Obama will appoint to replace Ben Bernanke. This brings up concern about how the new Federal Reserve Chairman will administer Quantitative Easing. The Dow seems to drop considerably with any mention of the Feds easing the easing. Quantitative Easing (I’ve lost track of the numbers) is averaging $85,000 million each month. The market appears to favor the continued borrowing and accumulation of debt. However, as it must, Quantitative Easing will diminish and stop at some point in time.
How much is the increase in debt service when America has to pay 1% more in interest to attract lenders?
To make answering simpler I did not include unfunded liabilities, I fixed the debt at $17 Trillion, I fixed payments at two times a year, and I used round numbers. Calculations include ten and thirty year maturities.
To service a $17 Trillion loan over 10 years with a 2% interest rate it will cost the borrower, America, $3.4 Trillion over the life of the loan plus the return of the $17 Trillion in principal when the loan matures.
The government does not pay down the principle over the life of the loan, as is the practice with home mortgages.
If the interest rises 0.5% that same $17 Trillion 10 year loan would cost $4.25 Trillion in interest plus the return of the $17 Trillion in principal when the loan matures.
If the interest rises 1.0% that same $17 Trillion 10 year loan would cost $5.1 Trillion in interest plus the return of the $17 Trillion in principal when the loan matures.
I can recall over my lifetime interest rates on government financial instruments between 2% and 12%. If the interest were 6% that same $17 Trillion 10 year loan would cost $10.2 Trillion in interest plus the return of the $17 Trillion in principal when the loan matures.
What about the same loan but for 30 years instead of 10 years?
To service a $17 Trillion loan over 30 years with a 2% interest rate it will cost the borrower, America, $10.2 Trillion over the life of the loan plus the return of the $17 Trillion in principal when the loan matures.
If the interest rose 0.5% that $17 Trillion 30 year loan would cost $12.75 Trillion in interest plus the return of the $17 Trillion in principal when the loan matures.
If the interest rose 1.0% that same $17 Trillion 30 year loan would cost $15.3 Trillion in interest plus the return of the $17 Trillion in principal when the loan matures.
If the interest were 6% that same $17 Trillion 30 year loan would cost $30.6 Trillion in interest plus the return of the $17 Trillion in principal when the loan matures.
“How Does America Service Her Debt?”
Like most women, marry a rich sugar daddy! ;-)
I do not think that America can and it is just a matter of time before our economic engine throws a rod.
LLS
First with “What difference does it make?”
Never loan your truck or chainsaw. Never marry a Democrat.
Do it, and you can be sure some SOB will throw a rod in her.
Nope, each President will continue to do what Obama has done: Nationalize, Nationalize, Nationalize.
I thought QE was 85 billion per month, not 85 million.
Slavery under Sharia
Sort of frightening.....
Outanding advice!!!
Correct, QE is $85,000 Million per month.
The Fed/Treasury could just short the market.
Wife or truck?
Same way the farmer’s cow gets “serviced”....
Pat Robertson’s idea for an International Year of Jubilee suddenly doesn’t sound so crazy, does it?
The US defaults. The ‘Rat party doesn’t care and neither does the Gelding Old Party either. It’s one big Ponzi scheme.
It’s phony debt. Stop paying attention to it and it will go away.
Pay it back? Won’t.
So which is it? I thought it was billions. Anything in the millions is chump change to the Fed.
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