As Budget Deficit Hits Record High, Interest On US Public Debt Hits Record Low

ZeroHedge Blog ^ | March 10, 2010 | Tyler Durden

[Cheap_Hessian]

What is wrong with this picture: the MTS just announced that the February budget deficit was $220.9 billion, after receipts of just $107.5 billion with vastly surpassed by outlays of $328.4 billion. This is a record. Yet the interest on the public debt was a mere $16.9 billion (page 13 of the MTS report). The reason for this is because as TreasuryDirect points out, in February the interest on public marketable debt (actual cash outlays), which as of Monday stood at $8.061 trillion, hit an all time low of 2.548%. How is it possible that unprecedented debt accumulation can result in ever declining interest rates, and Treasury auctions, such as today's 10 Year reopening, in which the Bid To Cover hit an all time high? One answer: The Federal Reserve, which through complete domination of the entire capital market courtesy of ZIRP and QE has now turned market logic upside down by 180 degrees. In a normal world, the more money you borrow, the greater the associated risk, and the greater the interest payments on this debt. Not in America though. So can we assume that the Fed can forever keep rates on debt at record low levels? No. Which begs the question: what happens when interest rates do finally start going up?

---SNIP---

It becomes obvious why the Fed simply can not allow rates to go up. It has nothing to do with excess liquidity, which of course is a major concern as America goes from one excess-liquidity bubble to another. The problem is that the surging budget, which will need ridiculous amounts of debt for funding, will truly explode if rates were to go up merely to 5%. What happens if rates hit 7.5%... or 10%? At that point it is game over.

[DannyTN]

The Federal Reserve, which through complete domination of the entire capital market courtesy of ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing) has now turned market logic upside down by 180 degrees.

Never bet against market logic.

The U.S. is still the safest investment. That's why they can borrow at very low interest rates.

The patient is not dead. Far from it. Debt levels may be at nominal historic highs, but as a percent of GNP, they are far from highs. And no where near the historic highs of some other countries like the UK which recovered.

Quantitative Easing makes sense during a deflationary recession with a severe credit contraction.

The deficits are temporary. Revenues will go back up as the economy recovers. Spending will go down as the economy recovers. Recovery will mean most TARP funds get repaid from the banking sector. Extended unemployment programs will drop and stimulus funds will no longer be needed.

If Republicans don't reign it in wasteful pork project spending after the 2010 elections, then third Party conservatives and President Sarah Palin will after 2012 elections.

War spending will not last forever. We are wrapping up in Iraq. Either we will wrap up Afghanistan and get out. Or we will take out Iran and Syria.

Cracks in Obama's NO ENERGY policy are starting to be seen. Not only has the Senate killed Cap and Trade, but Obama approved federal loans for two new nuclear reactors for Georgia.

[LZ_Bayonet]

".. but Obama approved federal loans for two new nuclear reactors for Georgia."

A political payoff to a 'nuke only' power company that employed Rahm and backed 'cap & trade"; and which stands to make huge profits with 'cap & trade' because of it's competitive advantage over the coal based power companies.

http://www.freerepublic.com/focus/news/2456041/posts?page=12#12

[DannyTN]

"A political payoff to a 'nuke only' power company that employed Rahm and backed 'cap & trade"; and which stands to make huge profits with 'cap & trade' because of it's competitive advantage over the coal based power companies."

Yes, I'm aware of the Nuclear industries, support of this ridiculous cap and trade legislation. But it doesn't mean that nuclear isn't one of the right technologies that is needed now.

It just means we need to open up competition because right now the nuclear industry is run by people who would wreck the country for their own personal gain.