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Vicious Interest Rates and Debt Threaten U.S. Economy

I am up very early today – 3 a.m. – that’s what happens if you go to bed at 8 p.m. Honestly I do my most clear thinking very, very early in the day. This morning my thoughts are on interest rates. These thoughts are difficult to consider without politics being part of the discussion–but political discussion is not allowed here so I will work around the obvious (Congress must cut spending or increase revenue).

We all know that the U.S. Treasury will be selling huge amounts of debt in the next year (and, of course, likely for years). And the fact is that in the next 10 years we will have massive amounts (read trillions and trillions) of NEAR ZERO (actually the average of outstanding debt was 1.61% in 2021) coupons in bills, notes and bonds maturing, which will be replaced with bills, notes and bonds all with coupons at 4-5%. Just like all the banks that have been reporting earnings in the last couple weeks the cost of funding for the treasury has increased many times over. Unlike the banks which balance the increased cost of funds with higher interest rates for borrowers the Treasury is not able to charge borrowers higher rates so they essentially have to ‘eat’ the increased cost of funds. ‘Eating’ these costs simply adds to the Federal deficit in the form of higher interest costs and the vicious circle goes on and on for years and years.

As of September, 2023 the cost of Federal debt service is running at $879 billion which is 14% of all federal spending. TODAY the average cost of debt to the U.S. treasury right now is around 3% and CLIMBING–so debt service is climbing to $1.7 trillion/annually (28% of total spending) and headed even higher. NOTE–all numbers from the U.S. Treasury website here.

So on the surface it looks like we are totally screwed. Is there even enough money in the world to fund our debt? Yes, for now, but at what point do investors lose confidence in the ‘full faith and credit’ of the U.S. to pay their debt? This is where the ‘rubber meets the road’ and for which there is no answer.

While we know that the Fed can lower the Fed Funds rate when the economy cools – but that doesn’t necessarily mean that 10, 20 and 30 year coupons are going to fall- investors may well demand higher payments for longer. Maybe they demand 6, 7 or 8%?

Now it is funny that this point of view is totally in contrast to the view of Bill Ackman, Bill Gross and other big names. These folks have moved from shorting treasuries to buying treasuries all based on a softening economy, but I am not sure I have read their perspective on debt and the ever higher debt service costs. Certainly on a historical basis interest rates would react primarily to economic conditions–but at what point do they trade based on the credit worthiness of the borrower? Maybe these ‘smart’ folks are looking at a 6 month horizon while I am trying to focus on a 5 year period.

I suspect that next year – very late in 2024 we will see the Fed discontinue quantitative tightening and then in 2025 start to cut the Fed Funds rate and then in very late 2025 begin quantitative easing–as the buyer of last resort so to speak. With the ‘run off’ of the Fed balance sheet (providing space for new purchases) the Fed can ‘bail out’ the treasury for a couple years until their balance sheet goes over $10 trillion–but at that point the deficit spending is so out of control that there would seemingly be no ‘out’.

So maybe we see long term rates fall with a soft economy for a bit–a year or two, but then we see interest rates skyrocket — I mean really skyrocket–20% when the global investors determine that the U.S. is going the way of the ancient Roman empire.

So today life goes on – just like yesterday and last week and last month. What the next 5-10 years holds isn’t known by anyone–and certainly not me.

66 thoughts on “Vicious Interest Rates and Debt Threaten U.S. Economy”

  1. ADP employment report only showed that private sector added 113,000 jobs, below forecast of 130,000

  2. Tim

    I think Washington’s addiction to deficits is even worse than you describe. The accounting doesn’t add up. Ever tried to reconcile “deficit” with increase in national debt. The increase is always larger than the deficit.

    I agree that both revenue and spending need to be improved but how does that happen without a massive recession?

    How long before Moody’s downgrades US debt to AA? I think within 24 months. Our debt to GDP is already much higher than other AAA’s.

    I have read Zeihan’s The End of the World Is Just the Beginning. He explains how the coming reduction in the American defense umbrella and existing demographic trends could play out. Not perfect but worth a fast read.

  3. takes just a few minutes looking at charts of tax receipts and outlays for the US Gov’t to determine the problem (of deficits) results from crisis spending that doesn’t correct after the crisis has passed. Two huge increases in expenditures; the GFC and Covid, drastically increased federal spending. Anyone looking at tax receipts being the issue or somehow equal in the solution wants to play politics. Its not any one particular president, or party but more just terrible situations that resulted in the Government “wanting to help”.

    1. Indeed. It is not about a revenue / tax problem with the Federal Government. It is about a spending problem

      Druckenmiller is correct – the US needs to stop spending like drunken sailors

      1. I take umbrage to the comparison to drunken sailors. I spent many years going to sea and admittedly did stumble a bit in a few ports, but never ever did I spend like the US Government!

        1. LOL – Yeah I am sure no sailor in history has spent as recklessly as the US Government

          We have a major spending problem with the government that needs corrected but no one has the guts to do so. The government takes in plenty of general tax revenue – they just choose to unwisely waste and spend much much more than they bring in

    2. Pig pile,

      I strongly agree.

      However, cutting spending will reduce growth of the debt, but alone will not reduce the debt in any significant way.
      We need less government spending and more revenues from tax reciepts if we are going to bend the curve in the right direction.

      Unfortunately, citizens do not want less government money and the people with money that we need more tax reciepts control the very politicians that would have their raise taxes.

      As a management consultant (retired) I would advise executives that transformational change comes from either a leader with a vision which people will follow, or a crisis nearing failure. Hopefully a visionay leaders emerges, but doubtful in our divided politics. I am hoping that as things get worse, the younger generations find a collective voice and say “enough” and step up and fix what we broke.
      Cheers! Windy

      1. “and the people with money that we need more tax reciepts control the very politicians that would have their raise taxes.”

        This is the biggest fallacy around

        The problem isn’t with the 10% of people in the country who currently pay nearly 74% of all the taxes. The problem is we have half the population in the country paying only 2% of all the taxes. And most likely that half of the population loves their “free” government money from various government programs so they are net takers from the government

        So if you want to address the revenue issue, you need to make everyone have skin in the game. A simple flat tax where everyone pays the same rate, no deductions for example.

        But again – the revenue side is not the real issue. The major driver is a spending issue

    1. If all he talked about was cutting entitlements, another zealot. Any solution that does not talk about reversing some of the last tax cuts AND reducing spending is just another zealot. Sorry, folks who believe otherwise, both need to be done.

      1. I would contend that anyone who tells you it can be done without cutting entitlements is just as much a zealot.

        1. As I said. “Any solution that does not talk about reversing some of the last tax cuts AND reducing spending is just another zealot.” That is shy I capitalized AND

      2. The individual tax cuts expire in 2025. This is will occur automatically unless Congress provides legislation to change. If memory serves the corporate tax cuts from same legislation did not have a sunset provision.

        1. If they are allowed to sunset, and the new revenue is not used to reduce debt, will it even matter?

          Undoubtedly, many people will be happy to see them go away, but beyond personal feelings, will there really be anything meaningful accomplished?

          Adding $1 trillion to the national debt instead of $2 trillion due to newfound revenue is not all that meaningful in the big picture of things.

          1. “Undoubtedly, many people will be happy to see them go away, but beyond personal feelings, will there really be anything meaningful accomplished?”
            ….I wont be happy because it will hit me directly in the wallet!
            Russell Long a representative from La back in the day had the best solution I think to solve the problem…….”Dont tax you, dont tax me. Tax that fella behind the tree!”

            1. I would have to go back and review my calculations to be sure, but as I recall it wasn’t a huge windfall for me at the time but it was better for me for sure.

              Some people probably benefited and will still be happy to see them go away. Just the nature of politics today.

      3. Steve,
        You must realize that the Biden administration has also cut taxes- in fact quite a bit for all things “green.” So when you say reverse the last tax cuts, I assume you mean those?

        1. I don’t care about Biden versus Trump. At the end of 2016, the annual deficit was around 650M. It is now 1.7B. That is what I mean by reversing the tax cuts (the last tax cut was admittedly a poor choice of words). Any of them from that point onwards needs to be considered for reversal. Spending also needs to be cut. We need to get the annual deficit back to around 2016 levels. Anybody who believes we can cut the budget by just dealing with (1) entitlements or (2) just raising taxes is unrealistic and pandering to one group or the other. We need to do both. I know that somebody will say this is what we need to do 1st. No sale – both means both. 1 Trillion dollars per year needs a real approach to the problem.

          1. So Steve, if I understand you correctly, you’re okay with rolling back all of the new green deal incentives? Correct?

            1. Steve,
              As I understand it, the Trump tax cuts costs in lost revenue amount to about 1.5 trillion over a ten year period and that’s assuming you ignore any benefit from the Laffer Curve. If memory serves, we’ve increased new spending by over 3 trillion in just 3 years. Additionally, raising the corporate rates to pre Trump levels will create a jobs loss problem as we would have one of the highest corporate tax rates in the developed world. My guess: we would lose jobs to countries with significantly lower rates. I respectfully disagree with much of your position.

              1. Just in- Yellen expects to borrow 1.6 trillion in order to satisfy the next 6 months of spending needs. That puts next year’s run rate at 3.2 trillion.

              2. The annual deficit in 2016 was about 650M. In 2019, it jumped to around 1 trillion dollars +350M. In 2020, it was 3.2T. In 2021 it was 2.8T. 2020 and 2021 was COVID. Can we please get past who was President?

                Right now, the deficit has been reduced from 3.2T (2020) to about 1.7T (2023).

                So, using 2016 as the base 350M added by 2019 (2020/2021 are one off’s due to Covid), 700M more added between 2019 and 2023. That’s the 1Trillion dollars per year. So about 35% added 2016-2019, 65% added 2022-2023. Whether the administration you like is 1/3 of the problem or 2/3 of the problem, doesn’t matter to me. We have a 1 trillion dollar problem to solve. We need to do both.

                    1. Hi Steve,
                      I would focus more on what they do as opposed to what they say. In this case look at their actual borrowing. It is a more reliable indicator of actual spending than what comes out of the CBO projections- as the CBO is notoriously wrong either because of political pressures or incompetence or both.


                    2. In addition, as I understand it, our debt is grossly understated. The size of our debt is much, much larger. For example, the actual National debt includes a lot of off balance sheet items, like social security and Medicare shortfalls.

                  1. LOL – Replying to both.

                    (1) In all due respect, you have it backward. https://home.treasury.gov/news/press-releases/jy1851 is the estimate which is what they say. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/ is the actuals of what they do. The same with looking at CBO estimates.

                    (2) Agree fully on the national debt but the actual way to impact that is the annual deficit. It should be a surplus, but I would be thrilled to be back to 2016 annual deficits.

                    To Tim’s original point, we now have to service this debt which is going to further blow a hole in the annual deficit. This is not a problem caused by either political party. It is a problem caused by both. Just like the solution needs to be one that addresses revenue and spending.

                    1. Funny! The point that I was trying to make: if the deficit is truly estimated to be around 1.7 trillion, then why is the treasury planning on borrowing 1.6 over the next 6 months? Are they simply borrowing everything they need for all of next year? For some reason, I doubt that be very much.

                    2. 1.7T is the actual deficit for 2023. The fiscal year ended in September 2023. This borrowing is for fiscal year 2024. Part of it is spending since 2020 (starting with Covid, continuing with Biden), tax revenue losses stemming back to tax reform in 2017, and the ever-growing costs to service the national debt. 2024 may be much bigger than we think at the treasury rates we currently have. I do not trust any estimates from the federal government, no matter who is providing them. Their track record is poor. Regarding your concern, the borrowing estimate is extremely alarming, especially with all the budget dysfunction in DC which has gotten worse than ever. A huge red flag.

                    3. You wrote “1.7T is the actual deficit for 2023.” Based on how the government defines deficit- yes, I would agree. But I am not particularly confident in that number. For example, if the government receives a $1,000 this year in social security taxes from an individual, the government counts that as revenue. But the government’s corresponding promise to pay that person $1,500 in social security payments ten years from now when he retires isn’t counted in this years deficit numbers. Instead, that debt can has been kicked down the road to be dealt with at a later date by different politicians. The revenue/outlay numbers are subject to a lot of political pressure. I’m only saying this because it seems like we are talking past each other. If I’ve offended, please accept my apology.

                  2. It has been a good respectful discussion. I understand your view. I am different, I deal in actual published numbers only.

  4. Here’s how UNCLE SAM got a “F” in math… 🙂

    2023 US Expenses ~ 6.2T
    * 1.5T ~ Healthcare (Medicare, Medicare, CHIPS, ACA)
    * 1.4T ~ Social Security
    * 0.8T ~ Interest on US debt
    * 0.8T ~ Defense
    * 0.7T ~ Other ( Educ, Transp, Research, Agric, Law)
    * 0.5T ~ Economic Aid to Lower Income
    * 0.5T ~ Vets / Federal Workers Retirement

    2023 US Receipts ~ 4.8T
    * 4.8T ~ Tax Revenues

    1. Just 2 cents worth about a penny…

      Anyone paying attention recognizes “something” needs to be done about the deficit. Some (most) feel quite strongly about this. It’s probably a safe bet that most envision action to resolve the deficit issue as an against someone else…you know, some imaginary tax-dodging fat-cat or exorbitant wasteful spender out there.

      A 1.4T (6.2-4.8) overspend represents 22.5% over income (tax receipts). Assuming all else is equal – you know, no endless bickering who’s responsible and finger-pointing at so-called fat-cats or so-called wasteful spenders – let’s imagine an equitable resolution – a 22. 5% expense cut across the board or 22.5% tax increase across the board, or some combination of both – for all.

      So we’ve all been table-pounders on this isue, but the sobering personal-level question is who’s ready for a 22.5% cut in SS income, 22.5% reduction in Medicare coverage (or increase in cost to cover same $$ of expenses), or other cuts to achieve 22.5% or for current-earners some combination including income tax increases (including SS tax on earnings) of the same 22.5% amount?

      I’d say it’s a bit touger to absorb the magnitude of what’s necessary when realizing it’s not “somebody” else – or resolved via imaginary other people’s money.

  5. I am not sure the average person or even above average can list out the majority of what the federal govt spends money on. That is basically the problem. The swamp is a perfect term for it. Nothing can be cut according to D.C. The federal govt gives out small and large amounts of money to the most ridiculous things and somehow it has become perfectly normal among everyone there.

    “Last year, the Pentagon announced it would spend $5.1 million to build a new 18-hole golf course at Andrews Air Force Base in suburban Maryland, which already has two. Golf Digest reported there are 19 military golf courses around Washington, D.C. Why a new golf course? One Pentagon official was quoted as saying “a lot of golf gets played out there. On Saturday mornings, people are standing on top of each other.””

    Grid is probably thinking that is a fair use of money while others do not. Yet surely it is not a priority right? right? Grid just greased something I want in my state and now we have 20 golf courses.

    1. Why not let private investors acquisition and develop golf courses? No need to spend public tax $. Yes this is looking like Rome 450AD.

    2. FC, Any true investor knows you dont even consider buying a golf course until its been through bankruptcy at least 3 times prior. Then its likely worth it to buy. ….You know the saying with government…. A billion here, a billion there, and pretty soon you’re talking about real money.

  6. I have been hearing “We’re near the end of raising rates”
    So, I asked Where’s the data to back that up?
    No answer,,,,,
    Now there’s a new one. “The 10 year T bill” effect indicator.
    I forgot why they told me that. methinks it has to do with end of recessions or such, but it’s not clear to me.

  7. IMHO, raising taxes or cutting spending will not be acceptable to the public or its leaders. The other alternative is inflation, which, as long as it is not too high, has historically been politically popular with some groups, like debtors. (Remember the farmer/banker lesson in high school history class? And later “Hey, my house went up.”)

    Inflation works out well for some people, less so for others, like seniors with fixed incomes pegged to an imperfect tracking index. (Spent a few hours yesterday listening to worried Florida seniors facing giant increases in property insurance premiums.) Even in this era of an ETF for everything, I find it hard to hedge against inflation financially. Long: energy, food, healthcare.

    – Nick Holmes has a new series of fast reading books on the Roman Empire. He includes modern economic topics like unbalanced budgets, debased currencies and inflation. There were a couple of later Emperors who recognized inflation and deficit spending and tried to dealt with them, like Aurelian and Diocletian.

    Aurelian paid his soldiers with debased fiat coinage backed by the Full Faith and Credit of The Roman Empire. Helicopter money before helicopters, the Federal Reserve Notes of the time.

    Diocletian tried to control inflation by imposing wage and price controls in 301 AD. That might sound silly to us today, but the US would try it in 1971.

    Diocletian was a hard money guy who put gold back into his coinage and raised taxes. When money is bad, barter is good. The untraceable income in the underground economy was big. So Diocletian put a wealth tax on assets that would scare the modern 1% and alarm the editorial writers at The WSJ. Strict enforcement discouraged creative tax accounting, like claiming your three cats as dependents on your 1099-SPQR. There was a death penalty for tax evasion.

    Observation: Once Was A Time when “3 am” meant Last Call. Oh my, where did the time go?

  8. US DEBT ~ US is currently spending roughly equivalent amounts on debt service & US defense; after Treasury rate increases filter through, the US will spend an amount equivalent to Social Security, putting that program and Medicare in jeopardy without congressional intervention.

    “Don’t turn on the fan, we built a very tall house of cards” ~ Ponzi

  9. We are not talking about gold or silver that needs to be dug out of the ground. It’s all a confidence game. We can create as many dollars as we need, it’s just an instrument for exchanges. However, the more we create the less they are worth. We won’t have an issue financing our debt but doing that and keeping inflation in check is the tricky part.

  10. I am with you Tim. I had to be up ridiculously early (in Wisconsin last few days) so I could leave at 3:45 am for the airport. Not sure my thinking is as clear as yours. You are a marvel.

    When I was in Grad school, I got to read a lot of original writings from some pretty smart people trying to survive/guide the economy through the hyperinflation in Germany after WWI. (I am not saying that the US is going into hyperinflation – only that “inventing” a new course of action is really hard without the benefit of hindsight).

    One of the key ways for individuals to survive the hyperinflation was to “step out” of the German economy by buying into investments in stronger currencies (Sterling, Dollar, Guilder, etc.) so that their capital was protected while the German economy was spiraling. We see the same thing today for people in Venezuela and Argentina. So, where do US investors go to “step out”? I don’t really see anywhere obvious.

    The huge difference we face is that the whole planet is still flocking to the dollar. It has massive problems and is headed for more, but it is still safer than most other currencies (which are almost all inevitably tied to the dollar one way or another anyway). Good for the short run – probably.

    But, if (when?) the world loses faith in the dollar, what then?

    Sure wish I knew.

    Gives me something to worry about during my flights, I guess.

    1. Private – nothing I hate worse than getting up at that time to drive to the airport in the winter time – did it in late August to head to Santa Fe for the 1st time in forever, but getting flights from Mpls to Albuguerque is more than difficult–take what you can get

  11. Hello Tim; I won’t get political either (although its hard not to) but at the end of the day its like Old Margaret Thatcher use to say :” The problem with socialism is eventually you run out of OTHER PEOPLE’S MONEY”. It is oh so true. $33.6 Trillion in Debt and growing by huge leaps and bounds daily. There absolutely will be a DAY OF RECKONING.

  12. The best quote I read from one of the Billionaires:

    “Everybody and their brother refinanced their mortgage with the low rates. Janet Yellen should have been doing the same for the Treasury. Her mistake is the biggest one in the history of UST.”

  13. ‘While we know that the Fed can lower the Fed Funds rate when the economy cools’
    IF and only if inflation is not raging. They can not lower rates if inflation is still an issue….

  14. Year to date, Gold is up about 9% and Bitcoin has doubled despite a strong USD. The market seems to be talking here.

  15. That is why it is imperative that the FRB breaks the back of inflation – long-term rates and inflation expectations move together. (and the FRB and Treasury are clearly aware)

    1. I think, Windy, is that the FRB only has one tool, and when all you have is a hammer, every problem looks like a nail.

      I don’t think they will be able to break the back of inflation by raising rates. All higher rates do is to (try to) reduce demand for debt. IMHO, we aren’t in a demand problem. We are in a massive supply problem, and the FRB can’t do much to fix it.

      About the only thing I can think of is to reduce rates and hope that the private sector can sop up some of the tidal wave of money coming from the government. I know that is contrary to current “modern” thinking, but it might help. It wouldn’t reduce inflation (I am not sure anything can, short of reducing gov. borrowing), but it might buy us a little more runway.
      Just my sleep deprived thinking….

  16. I think its generally accepted that the Fed will have to take a break and that there will be a ‘technical’ reprieve for some period of time in the treasury market.

    Looks to be stagflation so inflation will go higher and the cost to service everything will climb, especially with no changes in government spending.

    Long term fixed income investors will have to pivot in some significant fashion at the next relief opportunity.

    1. Do you have any suggestions for how to approach that long term pivot? Goals at 10 and 20-40 year horizons?

  17. from Barrons

    Companies Are Racing to Tap the Bond Market. Why They Suddenly Want to Issue Debt.

    Karishma Vanjani
    Oct. 31, 2023 3:50 pm ET
    Altria issued bonds on Monday, according to BofA.
    Justin Sullivan/Getty Images
    Companies borrowed billions of dollars on Monday as bond yields edged lower ahead of a series of events that could send them higher again.
    U.S. issuance of investment-grade corporate bonds totaled $22.5 billion across 12 deals. It was the biggest day for the high- grade bond market in terms of both dollar value and the number of transactions since Sept. 5, the day after Labor Day. Not counting that day, which is usually one of the busiest all year, issuance was the highest since mid-May, wrote Dan Krieter, fixed-income strategy director at BMO Capital Markets, on Tuesday.
    Companies including Morgan Stanley (ticker: MS), Altria Group (MO), and Bristol Myers Squibb (BMY) were the notable issuers.
    Issuing debt Monday allowed companies to get ahead of events that could move the market. On Wednesday, the Treasury Department is scheduled to disclose the mix of medium-term and long-dated debt it will issue over the coming months. More issuance of longer-dated securities could push their yields higher, which would force companies to offer more return on their own bonds to attract investors.
    Also Wednesday, the Federal Reserve is scheduled to disclose its next decision on interest rates. The bank is expected to hold rates steady after raising them 11 times since early 2022, but any indication that it might increase them again could send yields higher. Data due Friday on the job market add uncertainty as well.
    Borrowers certainly had a “desire to get ahead of numerous risk events this week,” Krieter told Barron’s.
    At the same time, the yield on 10-year debt has stabilized after climbing steadily since August to hit 4.99% on Oct. 19, the highest level since mid-2007. That surge raised the cost of borrowing, but the yield has declined 8.5 basis points, or hundredths of a percentage point, since then, making issuance more appealing.
    According to Yuri Seliger, credit strategist at Bank of America , Bloomberg data indicate one-month implied volatility for 10-year debt has come down in October after increasing significantly since early September. That is another way of saying that fluctuations in yields on 10-year notes diminished this month.
    That more stable market has Seliger bullish on November issuance as well. He forecasts issuance of investment-grade bonds will be between $80 billion and $90 billion as companies that avoided issuing debt due to the shock of higher rates come to the market.
    To be sure, both November’s forecast issuance and October’s $79 billion are below their respective five-year averages of $108 billion and $103 billion. But the slight improvement suggests optimistic sentiment could be gradually making its way into the market.

  18. Everyone hates the dollar. Problem is the alternatives are worse.

    Countries outside of the US depend on the dollar stability for global trade to occur. Even Canada only holds US dollars in reserves.

    Offshore US more dollars circulating than treasuries/physical dollars existing.

    Right now world governments are converting their treasury reserves into dollars for local economies to function and for trade to settle. These governments are taking a 50%+ haircut on the value of these holdings.

    Every government and nation around the world right now is basically supporting the US as a result.

    No better time to be a red blooded American.

  19. “Maybe these ‘smart’ folks are looking at a 6 month horizon while I am trying to focus on a 5 year period.” Yeah. These ‘smart’-ies are always talking their ‘Book’, and the Financial ‘Journalists’ are always close on hand to amplify. These guys have investors to answer to, and they have to ‘produce’ in the quarterly world we all live in, however much accounting gimmickry is deployed to mask this.

    As we all enjoyed watching the 2Bills try and move the multi-Trillion Bond Market recently, with their piddly ~20B between them, as the Bond Behemoth ignored their gnat like buzzing sounds in the English speaking media. Da Drucken Meister (throw in his ~10B and the splash still doesn’t elicit the tiniest of catspaws on the surface of the Bond Market) has been flogging the same Drawn-and-Quartered Horse on BloomingFUD in amplification the past few days. These guys are bit-players. The apex movers and shakers here are the Central Bankers who can move colossal sums on an inadvertent keystroke.

    Personally, my gizzard feeling is to back off on the long-term, unless it is to juicy to ignore, and focus on monthly to ~6+/-1 year durations in case your “20%” pans out. I’ve been thinking in terms of a worst case of ~14% and it taking maybe 5 years to get there …? ButWTFDoIKnow? I do imagine that the MM yields can evaporate like summer mist in sunshine, and volcanoes can erupt out of nowhere unannounced, but, neither of those extremes negates my ‘need’ (if I don’t want to cannibalize capital) for some sort of ‘adequate’ safe current yield. Go ahead, call me Mister Restating-the-Obvious, it doesn’t hurt me. On the other hand, drop a JDAM on me …

  20. No one wants to think of devaluing the form of currency currently used because we have already done that starting when we went off the gold and silver standard and kept going down that path when we quit minting coin in silver and the final debasement of even a copper penny isn’t even copper anymore, a commodity the world depends on.
    I don’t know the answer. I know looking right now our treasury house, the mint wanting $80.00 for a silver coin
    Think in terms of stock, that is 80 shares of stock for one new share. Think if you had 80 clad dimes and I gave you one real silver dime……
    Makes you wonder why our government is considering going to a digital currency doesn’t it.
    Why are people trading dollars for real estate at inflated prices? because you get something real, something you can live in, something you own and can sell.
    At some point there has to be a reset and that is scary. But all the world governments are in the same boat having went down the same path.
    I guess the real question is what can you trade those pcs of paper for a real commodity that others want? Doesn’t have to be precious metal, I liked my customer’s idea of Whiskey.
    God, it’s too early to be thinking this stuff

    1. “… trading dollars for real estate at inflated prices …” IDK. I get what you are saying, but, in the back of my mind I recall the Great Depression survivors I’ve known over the years coming back around to the dangers of being one of the “mortgage poor” if I exhibited enough patience and listened as they gathered their thoughts. It seems the Brain cannot do purely random access, but, must utilize some sort of sequential search process once it has a general idea where to ‘data mine’ the memories it is storing/hoarding. After 5 or 6 decades the time it takes to flip sequentially through the accumulated memories, even narrowed down to regions around ‘mileposts’/’bookmarks’ takes progressively longer. Accordingly, this ‘theory’ explains why the ‘youngish’ are so quick to blurt out ‘answers’: they just don’t have that much in their noggins to sort through 😉

      1. People on my side of the family didn’t talk about it or at least I wasn’t listening. My grandfather owned his farm outright, was his share of my great grandparents farm that was given to my great grandfather I think as a wedding dowry. Hard to farm with hills and mostly shale. He survived by doing his own coal mine then eventually selling it to be strip mined in the 60’s.
        My wife’s grandfather lost his farm in Wisconsin when the bank decided to make an example I was told because so many were having trouble paying the bank back. Back then my wife’s mother told me people were selling their homes in the East Bay (Oakland, Berkeley) completely furnished kitchen dishes, the linens everything. If you had a job and the money you got some great deals.

  21. If Politics is War by other means, then the Budgeting Process is the main Battlefield … ?

  22. Tim, I have been reflecting on that matter too. Of course I guess between QE and constantly rolling short maturities that could abate pressure on long end to some degree. I keep thinking is there a possible scenario with low short end rates, with the high long end stuck relatively high (very steep yield curve) and yet inflation very low to moderately low?

    1. Grid – I was kind of thinking the same – 2 year at 2% and 30 year at 9% – not certain how that would work.

      1. I’m curious. When the Fed purchases treasuries, how is the price determined if it is a supposed auction?

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