Wednesday, September 5, 2012
Trends in Interest Rates on National Debt Suggest Currency Crisis is Coming
US interest rates are falling while debt skyrockets. How long can this trend last? How low will the rate go? Shedlock doesn’t know the answers to those questions, but he does know that a rise in interest rates would cause a shocking increase in interest on the national debt.
Should interest rates rise to the long-term average, interest on US national debt would more than double from the 2011 figure of $454 billion dollars. The National Debt Clock website notes that “Maturity of US debt ranges from less than a year to over 20 years, with the average maturity about 3 years. More than half of the debt, however, is short term, maturing in less than a year.”
That is an interesting assertion: short-term debt is at .09%, 10-year notes yield 1.67%, and the 30-year bond yields a mere 2.79%. However, interest is on outstanding securities. A bond with a 6% yield maintains that yield until maturity.
If you get the idea a crisis of some sort is coming, fueled by out-of-control deficit spending as well as the Fed’s ridiculous “Operation Twist,” then you’ve got the right idea.
The Fed ought to be selling long-term bonds at these rates, locking in financing at attractive rates, not buying those bonds hoping to drive yields still lower.Of course, that latter statement assumes there should be a Fed or deficit spending in the first place, neither of which Shedlock believes.
Posted by Unknown at 1:56 AM