That brings up an obvious question, will the government still have a choice but to pay the increased interest.
“How high will the interest rate increase before our government calls it a deal breaker and refuses to borrow?
That brings up an obvious question, will the government still have a choice but to pay the increased interest.
“
From Wiki on Carter’s failed presidency.
The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well.
Obama doesn’t care what the rate is because he’ll just order the fed to print money.
One thing almost everyone in D.C. deliberately misunderstands is how big of a benefit we got out of the gradually lowering interest rates since 1983, and how that is completely gone now. We are at the bottom of the rate curve, and have nowhere to go but up. Yet democrats think that because Obama is in power, he needs a turn to increase the debt, because Reagan and Bush did. But it isn't about fairness and whose turn it is. It is about doing the appropriate thing at the time. Reagan, Bush, Clinton, and Bush could run up the debt and then refinance it later with a lower interest rate. When Obama does it, we will refinance it with higher rates, like an exploding adjustable rate mortgage. The best thing Obama could do would be to reverse what Clinton did. Clinton change the mix of bond maturities to focus on short term bonds with lower interest rates. Obama should change the mix to favor long term bonds, and at least lock in lower rates as much as he can in a rising environment. But he won't, because it is his "turn."
The Interest Rate has been effectively 0 or less for a long time and one of the problems that is discussed by economics commentators is the low level of lending and borrowing. Inflation has been so low as it is because all the money shoveled into the banks goes nowhere.
At this point I am not optimistic. I don't believe the current administration can cut spending even if they wanted to. When they can no longer borrow, they'll run the presses. When word gets out that we are monetizing our debt, things will start to happen fast.
A factor for devaluation must be included in the equation. So long as the devaluation rate equals or exceeds the interest rate the money is free to the borrower.
The debt total is decreased annually in real $$ more than the interest owed
My view is around 7%. A higher rate of devaluation will not be tolerated for long.
The key consideration is not so much the interest rate as the debt to GDP ratio, with various other factors taken into account. For the US, the dollar’s role as the world’s reserve currency gives us a greater (though not infinite) borrowing capacity.
Bonds? Heh, heh, heh.
Repub Sen: We Can Crash Into Debt Limit “Because the Only People Buying Our Bonds Are the Fed Res”
http://www.freerepublic.com/focus/bloggers/3076162/posts
6% Treasury yields sooner than you think?
http://www.freerepublic.com/focus/news/3049639/posts
JIM O’NEILL: We Could See A Bond Crash
http://www.freerepublic.com/focus/news/3031334/posts
The Treasury Bond Selloff Is ‘For Real’ And The Volume Is Gigantic
http://www.freerepublic.com/focus/news/3025102/posts
The Fed Owns 31.89% Of The Bond Market: Up 0.3% In One Week
http://www.freerepublic.com/focus/news/3060653/posts
Warren Buffett Warns: The Dollar Will Decline. Sells off longer-dated bond holdings.
(older news but still relevant)
http://www.freerepublic.com/focus/f-news/2695947/posts
In Carter’s years the mortgage interest rates were past 21% and people still bought. My parents bought at 12% in 1979.
At some point in time in the near future, the dollar will fall like a rock.