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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (71141)	2/20/2011 7:25:01 PM
From: carranza2	2 Recommendations Read Replies (2) \| Respond to of 218884

I'm beginning to think that tipping point is a lot more near than anyone thinks. here's why. interest rates are going up, not in a huge way but up nonetheless, despite ZIRP, QEx, etc. Most of our bond debt is being re-cycled into shorter term stuff to cut down on interest expense. But the 10 year is up about 100 basis points from historical low. According to stuff I read this weekend, each basis point up means huge increase in federal government interest expense for new stuff being issued, the old stuff of course is fixed but recall that we are recycling to shorter term debt. Higher interest expense means more printing, a tsunami of red ink, which will of course lead to even higher interest rates and inflation. All of this can take place rather quickly. From Bass's newsletter: ...the problem of over indebtedness that is ameliorated by ZIRP is only made worse the longer a sovereign stays at the ZLB with ever greater consequences when short rates eventually (and inevitably) return to a normalized level. Consider the United States’ balance sheet. The United States is rapidly approaching the Congressionally mandated debt celing, which was most recently raised in February 2010 to $14.2 trillion dollars (including $4.6 trillion held by Social Security and other government trust funds). Every one percentage point move in the weighted average cost of capital will end up costing $142 billion annually in interest alone. Assuming anything but an inverted curve, a move back to 5% short rates will increase annual US interest expense by almost $700 billion annually against current US government revenues of $2.228 trillion (CBO FY 2011 forecast). If this were to happen, unrest will follow because printing will go into overdrive as will inflation. I'm thinking we need to think of a nearer-term fiasco, 3-5 years.