a mild 3% increase in interest rates would cost the Federal government $510 billion a year in added interest payments [based on $17 trillion in debt outstanding this year]. The six percent we deserve would cost twice that much.
It is pretty plain that Congress will not cut spending or raise taxes by that amount, so the deficit/debt spiral is firmly in place. The government's only way out is going to end up being either high inflation for years or cancelling vast programs [cancelling Social Security may be the only way to save Medicare/Medicaid/Obamacare].
When this happens, will you be a winner or a loser?
2013-11-12T13:48:01Z
This Time is Different: Eight Centuries of Financial Folly [Reinhart and Rogoff, 2009]. R
2013-11-12T13:49:36Z
Reinhart and Rogoff documented every case in the past 800 years for which records exist and NEVER has a society come out well from a mess like the one we're in. NEVER. The small people always got savaged.
Lenny2013-11-12T13:33:39Z
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Judging from personal experience of living though hyperinflation in Ukraine, the only winners are those 1/2% of the population staying close to the money fountain in the nation capital - management of couple largest banks, top government officials and crony businessmen with personal connections in Government.
Other people are praying that their refrigerator or stove would not break, because if it would break they will be unable to buy a new one.
First, the government shutdown already tripled the interest rate we have to pay on short term Tbills. This was just one of the consequences of the Tea Party ignorance. Fortunately, it still is not anywhere close to 3%. Our credit rating however is still on a watch list, waiting to see what happens by the February deadline, so a lot will depend on what happens then.
But the main thing that would have to happen to raise the rates to 3% is that someone else would have to be offering bonds that people felt like were stable enough to be safer than US treasuries. That is not going to happen any time soon, since we still have the best economy around and people do not necessarily trust the Chinese, who are our closest competitor. The only other way the Fed would raise the rate that much is to CONTROL inflation, not cause it.
Eventually the People will get tired of the ridiculous refusal of Congress to raise taxes to cover the war debt from Iraq and Afghanistan. The national income will be raised and the debt will be retired, just as it was when Truman and Eisenhower were President.
Blaming social programs is stupid. The huge deficit comes from a tax cut while the nation was at war, and we will literally have to pay for it before things improve.
As for me, I was born with a trust fund and have an MD and a thriving practice. Things will have to get very bad indeed before I feel it.
If we get harmful inflation (over 3%), it will be due to:
1, a war or an emergency requiring rationing, or 2. bank lending.
Inflation is due to too much money chasing too few goods. Except for scarce commodities (energy), there are always enough goods during a recession and never too much money. That is why inflation comes only during prosperity.
During prosperity, inflation is always due only to too much money lent by banks, which lend $6 of credit for every deficit dollar spent by government.
To stop inflation, don't curb infrastructure spending! Regulate the banks!