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I've made the argument that rates cant go up without significantly affecting how much the US pays on it's outstanding 30T debt. This keeps rates low, housing pr

I've made the argument that rates cant go up without significantly affecting how much the US pays on it's outstanding 30T debt. This keeps rates low, housing prices at the very least stable, and inflation pervasive. I'd love to hear a counter argument.

heurisko 5y ago
Aren't bonds sold at a fixed interest amount for x number of years? In that case, why would a higher interest rate affect the ability to pay historical debt?
- deleted 5y ago
  [deleted]
- credit_guy 5y ago
  A lot of the Government debt is short dated, so it needs to be rolled. For example according to [1] (the official source), about $4 trillion of the debt is in T-bills, so they mature in less than 2 years, and about $13 trillion in T-notes, which mature in less than 10 years. [1] https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opds012022.pdf https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opd...
giantg2 5y ago
Why does the debt prevent rates from going up? The Fed as already signaled an appetite for increasing rates multiple times this year.
- m348e912 5y ago
  I think they intend to, but my point is I'm not sure they can raise rates with any significance. eg above 5 or 6% These a correlation between fed determined interest rates and how much the govt pays to service it's debt. Another person said they're not related, but I don't think the fed will want to balloon payments on $30T.
  - giantg2 5y ago
    5-6% is still very hefty. I doubt they'll go above 3% this year. Some of the inflation is actually transitional, so it shouldn't be above 5% once that settles down over the next year. Those are all guesses, or based on professionals who have written stuff (who are also sort of guessing).
- youniverse 5y ago
  Personally I liked these two videos on the current macro economic scenario that the Fed is currently facing: https://www.youtube.com/watch?v=ka_tLlJt-NU https://www.youtube.com/watch?v=ka_tLlJt-NU https://www.youtube.com/watch?v=jpdSR5AdgwI https://www.youtube.com/watch?v=jpdSR5AdgwI Strongly recommend everyone seeing this comment watches these, as I found the information very enlightening as someone who heavily invests and is not too well versed in economics.
  - giantg2 5y ago
    Can you give us an executive summary for why the debt would prevent rate increases? I have a bit of economics background, but generally try to stay away from YouTube investment videos with titles including stuff like "Red Alert".
    - youniverse 5y ago
      Agreed it may be off putting but he is an experienced financial investment banker and former CTO just playing the youtube game. His argument is that basically the Fed is going down a rough path right now and they don't have a lot of good options due to the massive debt. Raising interest rates just 1% adds 300B to their payments. Where is that money going to come from? Options he lays out: 1) Higher taxes (bad idea for a host of reasons) 2) Cut from other budgets to pay it (Military, Medicare, etc) 3) Go back to printing more QE basically creating a cycle of printing money forever as interest rates go up over the next few years. This will sink the value of the dollar. Also he read Ray Dalio's new book where he talks about long term debt cycles (ones that span ~70+ years) where governments basically need to restructure their debt because it has gone out of control. Nobody is old enough to go through stuff like this so he says most people are unaware of this possible macro scenario. This is Ray Dalio's opinion though and he has been wrong before. But if this comes to pass it will _crash_ the market and drop around 5% of GDP. Great financial crisis was 2.5%. The Fed has some important decisions to make and if they mess up real badly the US might just get a devalued currency, get less foreign and bond investment and eventually (this is extreme) be replaced as the reserve currency. So we will see how things go over the next 2-10 years. Again I would recommend watching the videos as he lays it out in more detail.
credit_guy 5y ago
The Government is not a monolith. The rates are driven by the Fed decisions, and the Fed is subject to a congressional Act that establishes a dual mandate (inflation and unemployment). The Fed does not care about the budget deficit, or at least not in a direct way, as they care about the inflation indicators (like CPI). The US Treasury does not care about the deficit either. They simply have to enact what the Congress says. If the Congress is ok with a $5 trillion deficit per year, the US Treasury will raise the required debt at whatever prevailing rates are out there. The Congress does not pass the budget bill in a vacuum, they start with a proposal coming from the Executive. So you have 4 actors, the Fed, the US Treasury, the Congress, and the President. Only the first one can manipulate the rates, and that one has only an indirect interest in how the long term debt of the Government looks like.

heurisko 5y ago

Aren't bonds sold at a fixed interest amount for x number of years? In that case, why would a higher interest rate affect the ability to pay historical debt?

deleted 5y ago
[deleted]
credit_guy 5y ago
A lot of the Government debt is short dated, so it needs to be rolled. For example according to [1] (the official source), about $4 trillion of the debt is in T-bills, so they mature in less than 2 years, and about $13 trillion in T-notes, which mature in less than 10 years. [1] https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opds012022.pdf https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opd...

giantg2 5y ago

Why does the debt prevent rates from going up? The Fed as already signaled an appetite for increasing rates multiple times this year.

m348e912 5y ago
I think they intend to, but my point is I'm not sure they can raise rates with any significance. eg above 5 or 6% These a correlation between fed determined interest rates and how much the govt pays to service it's debt. Another person said they're not related, but I don't think the fed will want to balloon payments on $30T.
- giantg2 5y ago
  5-6% is still very hefty. I doubt they'll go above 3% this year. Some of the inflation is actually transitional, so it shouldn't be above 5% once that settles down over the next year. Those are all guesses, or based on professionals who have written stuff (who are also sort of guessing).
youniverse 5y ago
Personally I liked these two videos on the current macro economic scenario that the Fed is currently facing: https://www.youtube.com/watch?v=ka_tLlJt-NU https://www.youtube.com/watch?v=ka_tLlJt-NU https://www.youtube.com/watch?v=jpdSR5AdgwI https://www.youtube.com/watch?v=jpdSR5AdgwI Strongly recommend everyone seeing this comment watches these, as I found the information very enlightening as someone who heavily invests and is not too well versed in economics.
- giantg2 5y ago
  Can you give us an executive summary for why the debt would prevent rate increases? I have a bit of economics background, but generally try to stay away from YouTube investment videos with titles including stuff like "Red Alert".
  - youniverse 5y ago
    Agreed it may be off putting but he is an experienced financial investment banker and former CTO just playing the youtube game. His argument is that basically the Fed is going down a rough path right now and they don't have a lot of good options due to the massive debt. Raising interest rates just 1% adds 300B to their payments. Where is that money going to come from? Options he lays out: 1) Higher taxes (bad idea for a host of reasons) 2) Cut from other budgets to pay it (Military, Medicare, etc) 3) Go back to printing more QE basically creating a cycle of printing money forever as interest rates go up over the next few years. This will sink the value of the dollar. Also he read Ray Dalio's new book where he talks about long term debt cycles (ones that span ~70+ years) where governments basically need to restructure their debt because it has gone out of control. Nobody is old enough to go through stuff like this so he says most people are unaware of this possible macro scenario. This is Ray Dalio's opinion though and he has been wrong before. But if this comes to pass it will _crash_ the market and drop around 5% of GDP. Great financial crisis was 2.5%. The Fed has some important decisions to make and if they mess up real badly the US might just get a devalued currency, get less foreign and bond investment and eventually (this is extreme) be replaced as the reserve currency. So we will see how things go over the next 2-10 years. Again I would recommend watching the videos as he lays it out in more detail.

credit_guy 5y ago

The Government is not a monolith. The rates are driven by the Fed decisions, and the Fed is subject to a congressional Act that establishes a dual mandate (inflation and unemployment). The Fed does not care about the budget deficit, or at least not in a direct way, as they care about the inflation indicators (like CPI). The US Treasury does not care about the deficit either. They simply have to enact what the Congress says. If the Congress is ok with a $5 trillion deficit per year, the US Treasury will raise the required debt at whatever prevailing rates are out there. The Congress does not pass the budget bill in a vacuum, they start with a proposal coming from the Executive. So you have 4 actors, the Fed, the US Treasury, the Congress, and the President. Only the first one can manipulate the rates, and that one has only an indirect interest in how the long term debt of the Government looks like.