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.
Dear FReepers, allow me to introduce you to a new word:
Restructuring.
Have a nice day.
All three.
Not to worry..........we still can keep handing out Obamaphones and EBT’s, so we have The Messiah to save us all.
We will replay the video of Obama saying “We don’t have a debt problem.” and the media will repeat it enough until our creditors believe it.
Americans are reveling in their increased “wealth” because of increased stock prices according to the MSM regime cheerleaders. But when you try to cash in on some of that wealth, the stock market dives like it did today. The Progressives are biding their time to allow inflation, not just plain old inflation, but hyper-inflation to eliminate the debt. Foreigners are dumping the dollar like crazy and buying hard assets before the dollar becomes worthless.
The debt will be repudiated, of course.
Sorry...
5.56mm
It is not chump change when it is thousands of millions as in billions or millions of millions as in trillions.
How? By handing over our land, minerals, and pristine parks. We shall be strip mined.
Yep. When the QE stops, the debt balloon will pop. Bonds will collapse. Interest rates everywhere will skyrocket. Economic activity will screech to a halt. Pensions will stop. Most government employees will be laid off permanently. Police agencies will remain employed to stop former pensioners and employees from rioting.
As government employees and pensioners lose their incomes, their foreclosed properties will be sold to the Chinese.
The fed?
Just a bunch'a guys with worthless pieces of paper.
Other nations?
Call in our WW2 markers.
We have power to wake up tomorrow debt free.
Hang socialists
Socialism Is Legal Plunder - Bastiat
BIG GOVERNMENT IS CRONY SOCIALISM
The debt regime, sitting happily on its fat posterior and producing nothing of real value, can crash slowly with QE or more suddenly without. It doesn’t matter to me. Either way, I’ll produce and sell something useful, when they’re picking up trash for their daily bread.
imho there are two things that have kept the dollar trending essentially sideways for the last two years.
The first is that the USA is producing 1 million barrels@ day more this year as it did last year and looks to produce 1 million barrels@ day more next year. This changes real world capital flows.
The second big thing that’s happening is that the federal deficit is falling fast. Current estimates are that the federal deficit will fall from 1 trillion last year to 650 billion this year. If deficits fall next year by similar amounts then the federal deficit will fall within normal ranges of years past.
Things could happen very quickly —like US growth rates could expand—for example if the supreme court declares obamacare unconstitutional this fall/winter. That’s very much in the cards as they have moved up a couple of key cases to their dockets.
Fast US growth rates would knock out the federal deficits in a year or two—and the fed would be forced to stop printing money.
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