So many treasury bills in so little times means the yields are gonna go higher, meaning the interest on those ``debts`` will go higher... for example,
the average interest on the debt is 3.141%.
It's been going down a little
since February...because the euro is imploding and somehow people still believe in the US dollar/economy. Now if you remember, the interest on Greece
debt went as high as 30% on the markets...the IMF made them a deal at 3.5% for 30 billion and if they wanted more they could have it at a higher
yield. The setback for this deal is that the IMF controls their economy.
Now if the US keep doing that kind of BS, investors at one point will stop believing in the US...after all it already begun, the demand for 2 years
treasury bills fell to record lows, while the 6 months treasury bill demand went up around 14% in a day a few weeks ago. People buy those because they
are short terms. They only bought US treasuries because there's ``no other alternative``...of course there's precious metals, but those are the
devil according to most economic teachers so...yeah. They only believe in the US for the short term.
If they keep doing this, someday the interest rate on those will start rising... and those treasury bills have an expiration date. They will have to
But for now it's a good strategy since the interest on those treasury bills is only 0.221%. So if you get more than that in GDP creation using the
money, you are a winner. But once they start to rise... then you are screwed. And IMO that'll happen as soon as investors figure out that the US is
screwed, or that another big economy rise up... China is in trouble, the euro zone is in trouble, Japan is in trouble... The US, by putting everyone
else in trouble, saved itself. If it would have been only the US in trouble, the US would already be bankrupt.
According to the market data I've seen in March, markets were predicting the interest rate on 10 years treasury bonds to rise by 2% within a year.
We'll see if that happens.
But still, let's do some maths.
Let's do a scenario for July 2011.
US debt on July 2011 : 15 trillions.
FED interest rate : 0%
Average US debt interest rate (right now it's 3.141%) : 5.2%
5.2% X 15 trillion : 780 billion $ in interest for a year... The US government total income for 2009-2010 was 2.381 trillion.
780 billion/2381 billion = 32.75% of the federal income would go to pay JUST INTEREST on the debt...
That is pure insanity.
Now if the FED raise interest rate, it's gonna be more than 5.2%... if the world economy recovers and the US does not, it's gonna be higher than
5.2%, if China stops buying US debt, it's gonna be higher than 5.2%... ect...
If you remember, during the height of the crisis in the 1980, the yield on US bonds was around 30%!
Today, that would mean 4.5 trillion just in interest/year. That would mean 188% of the federal income... JUST IN FREAKING INTEREST.
And that would only be the FEDERAL bonds... then you add the municipalities bonds, which are presently collapsing... the state bonds, the commercial
Everything is affected when it starts.
It can get a lot worse than what it is now.
Or maybe I just totally missed the mark.
[edit on 8-7-2010 by Vitchilo]