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Interest rates set to tripple the national debt

Weatherman

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#1
The FED will be busy buying government debt because there will be much more debt and few other buyers.

The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases
By Daniel R. Amerman, CFA

The United States national debt is currently about $20 trillion, and the federal government is paying some of the lowest interest rates in history on that debt. The Federal Reserve has raised interest rates five times now, and is publicly considering another seven increases between 2018 and 2020, for a total increase of 3%.

What will be the impact on the national debt and deficits if the interest payments on the debt jump upwards because of the actions of the Fed?



As shown in the graphic above and as will be developed in this analysis, the Federal Reserve increasing interest rates will have a building and eventually explosive impact on the annual deficits that are run by the federal government. The blue area shows what annual deficits would be if the Fed were not raising interest rates, and even in inflation-adjusted terms those would eventually climbing to over $2 trillion a year anyway, primarily as a result of increasing Social Security and Medicare costs.

The yellow area is the increases in deficits that occur solely as a result of the increases in interest rates. As can be seen, the initial impact is small, but the damage quickly escalates. Near $2 trillion a year deficits are now reached in ten years, and then rapidly increase to over $3 trillion, then over $4 trillion, then over $5 trillion a year by 2046. In later years, this is more than twice what the deficits would be without the rate increases.

The increase in deficits sends the national debt soaring upwards - even as the interest rates paid on those larger debts are higher than they otherwise would be. This then creates a compound interest problem for the United States government. As analyzed herein, the Fed increasing interest rates by itself could increase the national debt by an additional $54 trillion in thirty years (in nominal dollars).

A nation that is $20 trillion in debt has fundamental constraints when it comes to interest rates that would not exist at lower debt levels. These constraints are likely to have a powerful influence on future yields and prices in all the major investment categories, including stocks, bonds, real estate and precious metals.

More detail at: http://danielamerman.com/va/macro/RateRise.html
 

Weatherman

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#3

Weatherman

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#4
Received this update by email:

The previous analysis, "The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases", was the subject of a recent podcast interview with Cris Sheridan of Financial Sense.

While this was a premium interview on Financial Sense and is only available to paid subscribers, they agreed to provide a free link so that my audience could listen as well.

http://danielamerman.com/va/macro/FSpodcast030918.html



These are critical issues for the coming years, and I hope that you find the interview to be of interest.
 

Usury

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#5
I question whether they will actually let rates jump that much. How can they?
 

hoarder

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#6
The banksters don't care what the "national debt" is. They know they won't collect it anyway.
 

Usury

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#7
I’m talking about .gov
 

solarion

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#8
This is just the impact on the federal regime. If rates go that high, back to "historic norms" then things will blow up. State and local goobermint drones cannot just whip up debt dollars like the fed can, they'll implode.

Just a bunch of lip service from the fed imo.
 

abeland1

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#13
History, repeating.
 

Mujahideen

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#16
Hopefully things blow up, collapse and get ugly... Then maybe people will start asking important questions.
 

gringott

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#18
On the other hand, rising interest rates are positive for savers, insurance companies, pensions. Just to mention a few.
Horrible for Amazon and their ilk.

The FedGov debt? What cannot be paid will not be paid.