Market alarm as US fails to control biggest debt in history

The Telegraph ^ | 12/11/2010 | Liam Halligan

[bruinbirdman]

US Treasuries last week suffered their biggest two-day sell-off since the collapse of Lehman Brothers in September 2008. The borrowing costs of the government of the world’s largest economy have now risen by a quarter over the past four weeks.

Such a sharp rise in US benchmark market interest rates matters a lot – and it matters way beyond America. The US government is now servicing $13.8 trillion (£8.7 trilion) in declared liabilities – making it, by a long way, the world’s largest debtor. Around $414bn of US taxpayers’ money went on sovereign interest payments last year – around 4.5 times the budget of America’s Department of Education.

Debt service costs have reached such astronomical levels even though, over the past year and more, yields have been kept historically and artificially low by “quantitative easing (QE)” – in other words, Federal Reserve Chairman Ben Bernanke’s virtual printing press. Now borrowing costs are 28pc higher than a month ago, with the 10-year Treasury yield reaching 3.33pc last week, an already eye-watering debt service burden can only go up.

Few on this side of the Atlantic should feel smug. The eurozone’s ongoing sovereign debt debacle has pushed up Germany’s borrowing costs by 27pc over the last month – to 3.03pc. The market has judged that if Europe’s Teutonic powerhouse wants the single currency to survive, it will ultimately need to raise wads of cash to absorb the mess caused by other member states’ fiscal incontinence.

While the UK isn’t ensnared in monetary union, gilt yields have also spiralled 18pc since the start of November – to 3.55pc. British Government debt is officially £1.05 trillion. We are fast approaching a debt-to-GDP ratio of 100pc, compared to 30pc just a decade ago. If you add off-balance-sheet liabilities to Government estimates, including

[DeaconBenjamin]

Oct 8, 2010 close 2.38%
Dec 10, 2010 close 3.30%

The two month swing has been 38.6 percent, and 92 bps.

CBOE Interest Rate 10-Year T-No (^TNX)

[Glenn]

Around $414bn of US taxpayers’ money went on sovereign interest payments last year

That is slightly less than the entire GDP in 1957.

[paladin1_dcs]

Sadly, it’s a mystical art to most Americans now. I know most of my wife’s family has no understanding what so ever of economics and while they’re not great thinkers, they’re not below average either. It’s just something that they were never taught as to how it matters to people on a daily basis.

[Praxeologue]

Thank you. I shot from the lip.

Note that the 10-year rate is back to where it was six months ago and 53bps below eleven months ago.

Dec 10/10 3.32%

Nov 10/10 2.65%, 67bps increase, 25.3%

Oct 8/10 2.41%, 91bps increase, 37.8%

Jun 15/10 3.32%, same as Dec 10/10

Jan 11/10 3.85%, 53bps decrease, (13.8%)

So with demand from current, and likely expanded, POMO volume, will the yield decline again, or will long-term inflation concerns control? History says supply and demand wins.

data per:

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2010

[The Comedian]

“Unexpected” by whom?

You know, the usual "experts" to whom every predictable and inevitable reaction to well-studied actions is a friggin' surprise.

Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.

[April Lexington]

REPEAL THE TAX CODE! The Federal Reserve and Tax Cheat Geithner have proved beyond a doubt that the Federal government can now just print and spend money. No need to further burden the tax paying public. Just pull a Federal budget out of the executive's *ss, have Congress pass the thing, have the Treasury whip up some bond documents and sell them to the Fed! Who needs tax payers anymore?!?!?! Or, Chinese lenders for that matter!

[April Lexington]

Nah, they can’t even print money. Did you here about the huge printing of $100 bills that had creases in them and all have to be destroyed now.

Just wait until they start running the health care system!