Debt explosion: US' long-term interest rates on course to double

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5754447/US-lurching-towards-debt-explosion-with-long-term-interest-rates-on-course-to-double.html

by gasull • 17 years ago

12 6 17 years ago

telegraph.co.uk

macg2• 17 years ago

If the fed buys us treasuries like they did in march, then the interest rates will remain low. Our debt holders like china, japan, and europe will be forced to buy our debt to keep the exchange rates favorable. A weak dollar means their current holdings are worth less and they have less ability to export goods and services. Us debt of these proportions is a gun to the head of the US debt holders. interest rates will remain low...like it or not.

jswinghammer• 17 years ago

They will remain lower than what the market price for interest would be but I don't think the Fed can keep rates too low for too long. We're in the midst of a major capital shortage in the world right now. Eventually someone is going to want access to the savings bad enough to offer higher returns on capital. Right now the Fed is having a hard time keeping the 30 year mortgage rate down to where they want it.

macg2• 17 years ago

The article was about the national debt. If the treasury auctions the us treasury bonds and nobody bites, then the interest rates must go up to entice them. OR the fed can buy the bonds at the lower rate and bingo. New cash is flooded into the market and the current debt holders are paid back with cheaper dollars.

There are only two ways we get out of this debt mess. Pay it off, or inflate our way out of it.

Paying it off will require a tax increase or an expansion in productivity and gdp. Productivity gains were what kept interest rates lower in the 90's.

Inflation is the other way, but it comes at a price. It steals the widow's ability to buy from her fixed income. It is only good for governments.

Letting the debt spiral out of control is not sustainable. Thats why you see china buying oil, steel and gold with their dollars now before the dollar gets inflated. It would be tough to be in their shoes right now. The are playing the globalization game and the us has a gun to their head.

prodigal_erik• 17 years ago

Inflation is good for debtors and bad for creditors; it reduces the value of every debt.

kirse• 17 years ago

Given that one of Obama's advisers is currently pushing another stimulus package [1], and given the fact that Obama has absolutely blown the records in every category of spending possible for this upcoming budget, I believe our plan is to inflate away our debt.

[1] http://www.bloomberg.com/apps/news?pid=20601068&sid=ajQb...

alessandro• 17 years ago

In the medium-run the dollar value will go down (in 6/8 months). There's non way the USA could repay the debt. Brasil,Russia,India and China (the BRIC) want a group of currencies non only the dollar, to be the world currency. They don't want, for the future, to encrease their dependance on the dollar. In the future they will become (and the China is becoming now) more advanced economies, not only selling goods to the west. And the american debt holders are afraid of the american debt becoming larger day by day. So you should expect bat times for the american bond and the dollar (but good for your export and debt).

Debt explosion: US' long-term interest rates on course to double

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