Investors brace for risk of first half-point Federal Reserve rate hike in more than 20 years in Marc

[Free Vulcan]

The other thing is that the Fed only determines certain interest rates, such as the Fed funds. They don't determine rates for either new or existing govt debt. That is determined by the market.

And with a significant percentage of debt held by foreign agents, spiking rates means their holdings are losing money. Compound that effect by the currency exchange loss if they start selling large quantities of our debt and drive the dollar down. That will bleed to the equity markets too, which in turn will exacerbate our budget problems even further in a vicious cycle.

We have created a perfect storm that could just pound the crap out of our entire financial system with a self-reinforcing hurricane if it lets loose.

[Hoodat]

I see where you are coming from now, and essentially agree with it.

Realistically, to balance a budget of almost $30 trillion when tax receipts are only $3.4 trillion per year is an impossible feat.  If we can begin making headway that direction, it will at least be a start though toward a satisfactory and rewarding end.

Only a manageable fraction of that $30 trillion will become due this year.  It doesn't all have to be paid off in one year, but only when those bonds become due, the majority of which are held by the Social Security Administration and the Fed itself.

[Hoodat]

My parents like to talk about double digit interest rates in the 70's. Might they be returning?

They're already here.

[Kamaji]

All brought to you courtesy of the Democrat party and their henchmen who support them like Big Tech and the media.

Indeed.

[Hoodat]

No, it doesn't.  You're confusing the current annual budget with the balance sheet. 

A clean balance sheet is not the same thing as a balanced budget.

Again, each annual budget includes the retirement of debt that become due in that fiscal year.  Balancing the budget means that those outlays due that fiscal year are honored.

[Kamaji]

Again, each annual budget includes the retirement of debt that become due in that fiscal year.  Balancing the budget means that those outlays due that fiscal year are honored.

Whatever, chief.

[Hoodat]

All brought to you courtesy of the Democrat party and their henchmen who support them like Big Tech and the media.

Republicans are complicit in this as well.  We haven't had a balanced budget in over 64 years.

[Kamaji]

Republicans are complicit in this as well.  We haven't had a balanced budget in over 64 years.

On that point I wholeheartedly agree.

[DefiantMassRINO]

Each fiscal year, they issue new debt to pay off the old debt.

They never retire any net principal.

It's like my paying my monthly mortage with a credit card whose balance I never payoff, but roll onto yet another credit card.

Sure, it looks like my mortgage principal is being paid down, but that's more than offset by the increasing credit card balances due and the accruing interest.  My overall net liabilities keep growing.

As soon as I no longer have sufficient cash flow to make the minimum monthly payments on my credit cards, the jig is up - my mortage comany and credit card companies are now in possession of my non-performing loans or lines of credit.  The government will bail out the mortage company and the credit card companies, but I'm out of luck.

[Hoodat]

Each fiscal year, they issue new debt to pay off the old debt.

They never retire any net principal.

It's like my paying my monthly mortage with a credit card whose balance I never payoff, but roll onto yet another credit card.

And this is the problem.  With your household budget, you are expected to pay your monthly mortgage out of the deposits made to your account that month.  That is what is known as 'balancing the budget'.  If the federal government did this with their own budget, our nation would be debt free by 2042.

[Hoodat]

Whatever, chief.

OK, let me try again.  I am not looking at balance sheets here.  I am only looking at what is due each year.  Let's say the government has $1 trillion of debt that becomes due in 2022, another $1 trillion in 2023, and so on up through 2026.  That's $5 trillion total on the balance sheet.  But they only have to come up with $1 trillion each year since that will be the amount actually due.

So in 2022, instead of retiring that year's $1 trillion by borrowing another $1 trillion, they simply cut back on spending and pay off that $1 trillion from tax revenues collected that year.  Going into 2023, their overall balance sheet is now at $4 trillion instead of $5 trillion.  But they only have to cover the $1 trillion that is due that year.  Going into 2024, the balance sheet shows $3 trillion.  But they only have to cover the $1 trillion that is due.

I don't know why that is difficult to understand.  Anyone with a household budget (with no means to print their own money) knows how this works.  Dave Ramsey 101.

[catfish1957]

My parents like to talk about double digit interest rates in the 70's. Might they be returning?

I remember the '70's, and this is actually more sinister, as the rates have shot up like a rocket. versus in Ford/Carter maliasie  era of the mid 70's, it was quite a bit more gradual in nature.

And to the point of double digit inflation?  Every January 1st, I craft very accurate and precise budgetary document almost to the $.
2022 expected expenses is up 14.08% versus 2021 expenditures.  I know I am only one example, but I have a feeling my numbers proabably track pretty close to everyone else.

So as far as what inflation, and actually what the CPI is?

Don't beiieve Biden one moment. My guessitmate is that it really more like 12-16%.

[IsailedawayfromFR]

Only a manageable fraction of that $30 trillion will become due this year.  It doesn't all have to be paid off in one year, but only when those bonds become due, the majority of which are held by the Social Security Administration and the Fed itself.

Unfortunately, those short term bills have become an unmanageable amount of the current debt.  Try +12% of current debt in debt with maturities less than one year.  These interest payments will skyrocket

https://www.treasurydirect.gov/govt/reports/pd/mspd/2021/opds122021.prn

[Hoodat]

Unfortunately, those short term bills have become an unmanageable amount of the current debt.  Try +12% of current debt in debt with maturities less than one year.  These interest payments will skyrocket

https://www.treasurydirect.gov/govt/reports/pd/mspd/2021/opds122021.prn

@IsailedawayfromFR

Where are you getting that 12% number from?  I'm not seeing anything at that link that denotes short term (i.e. less than a year) maturity.

I see roughly $2.3 trillion in adjustable rate and inflation rate securities which would be of concern.  But overall, $18 billion of the debt is held by Social Security or the Fed.  Rolling over $6 billion in Social Security bonds won't matter since the government will be paying itself the interest.  And the $12 billion owed the Fed will never be paid back.  They will simply write it off.

This leaves roughly $12 billion in debt that is held by outside entities.  That is definitely manageable, provided we balance the budget first, and then keep it balanced until the last bond is retired (20 years max).  If necessary, short term debt can be converted to long term debt for the first year.  After that, retire every bond that becomes due on time.  No more borrowing. 

[IsailedawayfromFR]

@IsailedawayfromFR

Where are you getting that 12% number from?  I'm not seeing anything at that link that denotes short term (i.e. less than a year) maturity.

I see roughly $2.3 trillion in adjustable rate and inflation rate securities which would be of concern.  But overall, $18 billion of the debt is held by Social Security or the Fed.  Rolling over $6 billion in Social Security bonds won't matter since the government will be paying itself the interest.  And the $12 billion owed the Fed will never be paid back.  They will simply write it off.

This leaves roughly $12 billion in debt that is held by outside entities.  That is definitely manageable, provided we balance the budget first, and then keep it balanced until the last bond is retired (20 years max).  If necessary, short term debt can be converted to long term debt for the first year.  After that, retire every bond that becomes due on time.  No more borrowing.

I am not an expert at federal debt, so LINK reproduced in its entirety

Tbills have a maturity of between a few days and 52 weeks as I understand it.
These comprise $3,770,066,000,000 or 12,7% of all federal debt that totals $29,590,001,000,000

Let me know whether I made an error here somewhere. @Hoodat

MONTHLY STATEMENT OF TrE PUBLIC DEBT
OF THE UNITED STATES
DECEMBER 31, 2021
(Details may not add to totals)
TABLE I -- SUMMARY OF TREASURY SECURITIES OUTSTANDING, DECEMBER 31, 2021
(Millions of dollars)
                                              Amount Outstanding
                                              Debt Held             Intragovernmental         Totals
                                              By the Public         Holdings
Marketable:
  Bills.......................................        3,767,964                     2,102                 3,770,066
  Notes.......................................       12,992,160                     8,346                13,000,507
  Bonds.......................................        3,474,153                     7,358                 3,481,511
  Treasury Inflation-Protected Securities.....        1,727,968                       627                 1,728,595
  Floating Rate Notes  20  ...................          603,302                        58                   603,360
  Federal Financing Bank  1  .................                0                     6,053                     6,053
Total Marketable  a...........................       22,565,547                    24,544 2              22,590,092
Nonmarketable:
  Domestic Series.............................           28,592                         0                    28,592
  Foreign Series..............................              264                         0                       264
  State and Local Government Series...........          109,703                         0                   109,703
  United States Savings Securities............          146,201                         0                   146,201
  Government Account Series...................          290,177                 6,448,923                 6,739,100
  Other.......................................            3,263                         0                     3,263
Total Nonmarketable  b........................          578,200                 6,448,923                 7,027,123
Total Public Debt Outstanding ................       23,143,747                 6,473,468                29,617,215
TABLE II -- STATUTORY DEBT LIMIT, DECEMBER 31, 2021
(Millions of dollars)
                                              Amount Outstanding
Title                                         Debt Held             Intragovernmental         Totals
                                                 By the Public 17, 1Holdings
Debt Subject to Limit: 17, 19
  Total Public Debt Outstanding...............       23,143,747                 6,473,468                29,617,215
  Less Debt Not Subject to Limit:
    Other Debt ...............................              478                         0                       478
    Unamortized Discount  3...................            5,684                    14,999                    20,683
    Federal Financing Bank  1     ............                0                     6,053                     6,053
  Plus Other Debt Subject to Limit:
    Guaranteed Debt of Government Agencies  4                 *                         0                         *
  Total Public Debt Subject to Limit .........       23,137,585                 6,452,416                29,590,001
  Statutory Debt Limit  5.....................................................................           31,381,463
  Balance of Statutory Debt Limit….…….………..…………………………………………………………………..                                    1,791,462
COMPILED AND PUBLISHED BY
THE BUREAU OF THE FISCAL SERVICE
www.TreasuryDirect.gov

[Hoodat]

Tbills have a maturity of between a few days and 52 weeks as I understand it.
These comprise $3,770,066,000,000 or 12,7% of all federal debt that totals $29,590,001,000,000

Thanks, @IsailedawayfromFR .  I learned something today.  I had no Idea the government was that stupid.  Why in the hell would they sell $3.7T of short term debt in a single year?  The time bomb you spoke of earlier is a device of their own creation.  There is zero excuse for having this much short term debt (unless you are Goldman Sachs and are collecting a fee for every bond sold).

When Giuliani took over as Mayor of NYC, the city was facing its own debt crisis, primarily because of short term debt.  Giuliani replaced that short term debt with more manageable long term debt, which helped pull NYC out of that debt crisis.  Democrats of course were kicking and screaming about what a stupid idea that was.  But in the end, Giuliani was proven right.

We are better off immediately replacing this short term debt with 5 and 10 year notes.  Except now that inflation has reared it's head, it is going to be near impossible to sell $3.7 trillion in bonds in a single year for less than 10%.  Gotta start somewhere though.  Cut spending below 18% of GDP, and then move forward from there.

[IsailedawayfromFR]

Thanks, @IsailedawayfromFR .  I learned something today.  I had no Idea the government was that stupid.  Why in the hell would they sell $3.7T of short term debt in a single year?  The time bomb you spoke of earlier is a device of their own creation.  There is zero excuse for having this much short term debt (unless you are Goldman Sachs and are collecting a fee for every bond sold).

When Giuliani took over as Mayor of NYC, the city was facing its own debt crisis, primarily because of short term debt.  Giuliani replaced that short term debt with more manageable long term debt, which helped pull NYC out of that debt crisis.  Democrats of course were kicking and screaming about what a stupid idea that was.  But in the end, Giuliani was proven right.

We are better off immediately replacing this short term debt with 5 and 10 year notes.  Except now that inflation has reared it's head, it is going to be near impossible to sell $3.7 trillion in bonds in a single year for less than 10%.  Gotta start somewhere though.  Cut spending below 18% of GDP, and then move forward from there.

Am glad we are on same page.  We are wrecking the country by ill-advised short-term borrowing in the face of a long-term trend on rising rates.

I respect and admire your posts

[catfish1957]

Thanks, @IsailedawayfromFR .  I learned something today.  I had no Idea the government was that stupid. 

My 30+ year career was primarily dealing with the government and governmental agencies.  You have no idea how much stupidity and ineptitude is involved with these folks.

[Kamaji]

My 30+ year career was primarily dealing with the government and governmental agencies.  You have no idea how much stupidity and ineptitude is involved with these folks.

My parents worked for the federal government, and one of their favorite sayings was "good enough for government work" - it was never meant as a compliment.

[Bigun]

My 30+ year career was primarily dealing with the government and governmental agencies.  You have no idea how much stupidity and ineptitude is involved with these folks.

Oh yes I do!

[Hoodat]

@IsailedawayfromFR

Thank you for your kind words of encouragement.

[Hoodat]

My 30+ year career was primarily dealing with the government and governmental agencies.  You have no idea how much stupidity and ineptitude is involved with these folks.

I did a one-year stint working on a DoE project contract.  Within a couple of months, I swore never again would I do any government contract work.

[catfish1957]

I did a one-year stint working on a DoE project contract.  Within a couple of months, I swore never again would I do any government contract work.

My actual first job out of college was with the State Dept. of Health (for a year).  During my training, the Chief who was doing the training spent about a half a day doing errands as we made rounds.  His quote was....   "We don't get paid enough, so if you have personal business ...  do it on State time.   That was etched in my mind forever, as what I was dealing with.

[DefiantMassRINO]

Federal Government work is more about bureaucratic compliance and conformity that competence.

The reason for so much in short-term notes may be a function of rates ... generally, investors don't want to hold long-term notes whose interest rate is less than the rate of inflation ... in such circumstances, they'd be holding notes that return negative yields when adjusted for inflation ... over a few months or a year, it might be a tolerable loss because it's so small ... but compounded over 5, 10, 20, 30 year terms the negative return grows exponentially to an intolerable level.

[IsailedawayfromFR]

Federal Government work is more about bureaucratic compliance and conformity that competence.

That is exactly what the USSR had which weakened them into mediocrity and eventually dissolution.