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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: ManyMoose who wrote (301107)	4/15/2009 1:47:20 PM
From: Bearcatbob	4 Recommendations Read Replies (3) \| Respond to of 793955

Good question. The US government funds its deficits by borrowing. A major means of borrowing is to sell bonds into public markets. Currently the 10 year bond is trading for about 2.9%. That means the government sells bonds and offers a 2.9% interest rate. The offer of bonds is made to the market and the market clears at a rate of 2.9%. Now, if someone were to believe that in 10 years there would be an inflation they would never commit to lending money for 10 years at 2.9%. They would demand more interest - or the bonds would not sell. Now - I believe that rate rise demand is coming. As it goes higher and higher the cost of funding the deficit increases and the deficit itself increases as the interest component goes up. Rising bond rates are self destructive. It is like chasing one's tail. People today say they are comfortable loaning money to the US at low rates. However, the Chinese are starting to balk. In my mind the gig is about up. The bond market will blow the whistle on the idiocy going on in Washington. Bob