Best Buy, Krugman and the Carry Trade

Zero Hedge ^ | 11/29/09 | Bruce Krasting

[TigerLikesRooster]

Best Buy, Krugman and the Carry Trade

Submitted by Bruce Krasting on 11/29/2009 22:35 -0500

/snip

On ABC’s "This Week" show there were some interesting thoughts from Paul Krugman. He remarked:

“The cost of the deficit is only 1.2% real rate of interest at the Federal level.”

This is economic speak. What Mr. Krugman was saying is that the Government can borrow long term at 3.2% and inflation is 2% so the real cost of debt is only 1.2%.

In response, George Will made the point:

"In ten years the interest cost of servicing the debt will go to $700 billion per year!"

Mr. Krugman responded:

In ten years GDP will be $20 trillion, debt service would still be 3.5%. “That doesn’t sound too bad”.

Mr. Krugman believes in the ultimate carry trade. His view is that growth will come from affordable (cheap) debt capital. He thinks that the US can go to 100% Debt/GDP without upsetting the applecart. I think he is dead wrong.

We are at the point where the laws of big numbers start to come into play. For Mr. Krugman’ view to work out we would have to successfully sell an additional $900 billion of debt each year for the next decade. I think that is an impossible task. But what is truly impossible is that that amount of debt can be sold without an increase in the 1.2% after inflation cost of the debt that Mr. Krugman is relying upon. You can just fool so many bondholders for so long before they look elsewhere.

The cost of servicing our debt will likely double. The increase will be a combination of a general rise in interest rates and in increase in the “spread” that the US will have to pay.

[TigerLikesRooster]

Ping!

[DontTreadOnMe2009]

so sayeth the Marxist creep Pee Krugman, just before steeping outside and getting into his private limo, to be driven (not drive) back to his 20,000 sq. ft. palatial private estate, from whence he will issue more moronic statements such as the above ...

Yeah Krugman let’s borrow 20,000,000,000,000 dollars and be like Dubai.

The whole world is in a tizzy at our insane borrowing to date -— and you want to borrow more!!!

Can’t you get on your donkey and go back to whatever alternate universe that you came from?

Please?

Or at least stop talking and SHUT UP.

[Brilliant]

So if the real GDP is not $20 trillion in 10 years, how is Krugman going to make up for it?

[campaignPete R-CT]

You’re right, Tiger.

It isn’t the debt, it’s the interest. The future interest.

The future interest which will use up 100% of the income tax taken from American paychecks every pay period. That is what these silly voters do not understand. They won’t even understand it when that day arrives. They won’t understand it, but they WILL pay it.

$20 trillion x 8% (future rate) = $1.6 trillion annual interest, growing exponentially. The national mortgage is an ARM with balloon payments.

[jiggyboy]

A good test of whether somebody has any idea of what “sound economic policy” is, is whether they think it’s based on a never-ending Ponzi scheme where everything expands without limit and without negative consequences, forever. Krugman has been the very definition of “FAIL” on that for quite some time.

[grumpygresh]

If Will was on his game, he would have asked the butthole Krugman how much gold he has bought. If the satanic and utterly deplorable Krugman doesn’t have gold, at least we can be satisfied that his personal finances will fail because he’s thinking in the wrong direction.
Eternally burn Krugman.

[Yo-Yo]

We've been doing exactly this since FDR. Mr. Krugman fails to acknowledge that in the future not only will we have to sell more bonds, at the then current rates, to service the debt on today's bonds that come due, we will have to sell even more bonds to service future deficit spending.

The only way Mr. Krugman's analysis makes any sense is if from today forward we have zero deficit spending.

[MiltonFriedmanFan]

For our GDP to be 20 Trillion in 10 years, it would have to grow at 5% every year for the next decade. At best with our move to European style socialism, we can expect European style growth, 1-2% On top of that lower growth, we are looking at annual deficits of $750M at a minimum which would push interest payments on our debt near the funding levels of our entire military.

[DontTreadOnMe2009]

“For our GDP to be 20 Trillion in 10 years, it would have to grow at 5% every year for the next decade”

---

Under George Bush it grew at about 5% annually for 8 years.

(Saw it a few minutes ago today on another FR post)

Did anyone know this? See it in the paper or on the news??? Never.

GDP down 1.8% under the Big O ——— i.e. we are shrinking!!!

Anyone see this? Know this?

How can we ever win when they control 100% of the broadcast TV, and 100% of the major newspapers???

A puzzlement.

[Diana in Wisconsin]

See second to the bottom, 'Treasury Dept., which includes interest on our debt. Add to that, that we're nearly off the chart for freebies for non-producers (Health & Human Services) and we are in a WORLD of hurt. This is Big Government/Congress' fault. It's grown and grown and grown no matter which party was in office, but 0bama has added TWO TRILLION to our debt burden in less than a YEAR! Be afraid. Be VERY afraid...