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Strategies & Market Trends : ajtj's Post-Lobotomy Market Charts and Thoughts
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To: Qone0 who wrote (74691)12/14/2022 12:26:31 PM
From: Sun Tzu2 Recommendations

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ajtj99
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Powell will not have a choice. Like I said, it's not about what he wants but what he can do. An analogy is that one may be able to live on making minimum credit card payments, but one cannot do that if both the credit card interest rate and the new expenses are increasing. You can only increase one at a time. And to make it worse, increasing the interest rates will make the income lower too. Luckily for the government, they control the interest rates.

Let me walk you through it. There's ~$31T in Federal debt and as of last month we paid $103B or 11% of the budget just to maintain it. Suppose that interest rates go up by 50% (that will be just above the inflation rate). Then the government has to pay $150B to maintain it. This maintenance has to take the form of bond issuance, which in turn increases the interest rates leading to higher interest rates and greater issuance next cycle. Meanwhile, state, municipal, and corporate debt service charges will also spiral out of control.

At the same time, tax receipts will fall by at least 20%

The net effect will be government paying ~20% of its budget in interest payments alone! My credit card gives me better rates!

The Federal Reserve is a branch of the government and the treasury can make them do what they want. But even if they don't force the Fed, having the government issuing massive amounts of new debt that the market cannot absorb will cause a depression.

So this is not going to happen. Either the Fed will pivot and say they can live with 3%+ inflation (or concoct a story around looking at full cycle inflation), or they will do full YCC as they did during WW2...or all of the above.
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