Why This Time It IS Different

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Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3175
Why This Time It IS Different

Why it IS different this time, explained by one simple chart:

The 7-year 'salad days' era of cheap debt (as in "cheapest in all of recorded history") is over. Yet we're still increasing our debts exponenitally -- but now, the interest rate on that debt is increasing exponentially, too.

For a refresher on the ramifications of rising interest rates, review our previous article on the importance of The Weighted Average Cost Of Capital

aggrivated's picture
aggrivated
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 572
The debt roll over + higher interest rates

One thing that average Americans understand is the cost of a mortgage. It is a locked in long term fixed (15 or 30 year) interest committment.

One thing that most American businesses understand is the five year balloon note that has to be refinanced every five years at a new current rate.

One thing that Americans who have lost their homes due to having an ARM (adjustable rate mortgage) in rising interest rate envirionments is that interest can eat you alive.

The United States debt is much more an ARM than a 30 year note.  Most of the debt gets rolled over on a basis like the 5 year business notes.

This is from a Feb 2018 Fortune article: "the average time to maturity on U.S. debt is six years, meaning that most of the low-yielding bonds now on the books will be exchanged for more expensive debt over the next decade" (http://fortune.com/2018/02/16/us-debt-deficit-economic-growth/).

Sure this causes a convinient delay so that the administration that will suffer the political consequences of this will be just outside our current president's term limits, but most of us will still be here when that happens. How will the cost of interest problem be solved?--Higher taxes, reduced Social Securinty &/or Medicare (possible universal healthcare by then) benefits, reduced military spending (RIGHT!)

What would be your choice as a voter in 2024?

locksmithuk's picture
locksmithuk
Status: Silver Member (Offline)
Joined: Dec 19 2011
Posts: 133
Voting choices
aggrivated wrote:

What would be your choice as a voter in 2024?

 

I'm not Americanese, so I don't have the right to vote in US elections. If I did though, I'd stick my X next to the name which I could rely on to:

1. Be unafraid to obliterate debt one fine morning [via write-off], and pursue central bankers in their personal capacities [a la Iceland]. I'd expropriate their bonuses & wealth, and use it all to build the 1,000 new jails necessary to imprison them,

2.  Decentralise city economies. Including food distribution & food production;

3.  Shake hands with Russia and apologise;

4. Shake hands with Monsanto and then slip the cuffs on while they wallowed in false self-security,

5.  Ban broadacre / monoculture agri production, and introduce bonuses to farmers who increased the depth of their topsoil to, say, 12 inches through chemical-free production. $50,000 per acre, let's say. Plus a bonus for every region which aggregated 1,000 acres under the scheme,

6. Scrap the collegiate electoral voting system - it's bonkers and unfair,

7. Have the Fed audited. No audit means no mandate. Better still, scrap the Fed altogether and replace it with a committee of independent peeps [i.e. no links to the odious Goldman Sachs]. No need to have a fixed term for the Committee, but each member term limited to 5 years, with one member per year compelled to retire by rotation. One term only. Ever.

8. Persuade Noam Chomsky to join government for a special 2-year term as the most powerful official after the prez. Give him a stack of executive powers,

9. Arrange a date with the ICC for Dubya and Tony Blair. Get Cheney in there on the same charges,

10. Massive, massive subsidies for companies to use hemp for production of bio fuels, construction, medicine, and the multitude of other uses which Earth's most versatile plant is good for. You know - just like in the old days before we lost our marbles and our balls to Big Companies,

11. Audit Fort Knox. You know it makes sense,

12. Get waaaaaaay more women into cabinet positions and into foreign policy positions. The world would be a far more peaceful place without the overload of testosterone-fuelled idiocy in decision processes. Women are smart too - have you noticed?

13. Enact a law to remove "World" from use in "World Series". Baseball isn't a global sport.

That won't solve the world's problems, but it can only help a little bit.

JohnH123's picture
JohnH123
Status: Bronze Member (Offline)
Joined: Apr 14 2010
Posts: 48
Can someone please explain

Can someone please explain how interest rates rise and fall? How much control does the fed have, and how much is market forces? Can the market dictate rates, or is the Fed always in control?

pat the rat's picture
pat the rat
Status: Silver Member (Offline)
Joined: Nov 1 2011
Posts: 125
terms

Can the government rewrite terms on the bonds and note because they don't like the outcome.I think if they find that there no other way out,our government will try?

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
JohnH123 wrote: Can someone
JohnH123 wrote:

Can someone please explain how interest rates rise and fall? How much control does the fed have, and how much is market forces? Can the market dictate rates, or is the Fed always in control?

Traditionally the FED adjusted the FED FUNDS RATE by buying and and selling goverment debt in the secondary market.   Other players in that secondary market (bonds not sold directly by the Treasury) can influence rates as well.   After the FC the FED introduced Interest On Excess Reserves.   This perverse mechanism raised bank rates by creating an artifical floor.   Because banks could bank money at the FED for a safe return (to stealthily wash toxic balance sheets???) they increased the cost of loans to their customers but shafted their depositers.  Oh, and the FED QE's kept bond rates artificially low.   So Savers lost, and Rentier Cronnies won.   Why didn't America riot?   SickCare has handled that.

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