Saturday, December 15, 2012

Something To Worry About

"Meantime, the Fed's near-zero interest rate policy will continue to disguise the real cost of government borrowing. One reason the Obama Administration can keep running trillion-dollar deficits is because it can borrow the money at bargain rates. Stanford economist and Journal contributor John Taylor says the Fed has bought more than 70% of new Treasury debt issuance this year.  "All of this will create a fiscal cliff of its own when interest rates start to rise. The Congressional Budget Office says that every 100 basis-point increase in interest rates adds about $100 billion a year to government borrowing costs. Pity the President and Congress who have to refinance $15 trillion in debt at 6%. If Mr. Bernanke really wants to drive the President and Congress to reduce future spending, he shouldn't keep bailing them out with easier money." 

So our best creditor, China, bails on investment in US bonds and chooses instead direct foreign investment; who's going to buy our debt from us when the Fed can no longer do so? And what will they charge?  That's the start of the death spiral, let's hope it's just something to worry about.

No comments:

Post a Comment