Us Debt, Ir's And Sustainability

[interestrateripoff]

http://www.brillig.com/debt_clock/

Not sure how accurate this figure is but it highlights the problem of servicing the debt.

The Outstanding Public Debt as of 17 Mar 2009 at 09:56:27 AM GMT is: $10,996,741,662,061.05

Outstanding current US debt is the above, assuming this clock is correct.

Now at 5% IR that means to service the debt the US needs:

$549,837,083,103.05 per year

Even being charged 1% the US needs to generate $109,967,416,620.61

Just think how many schools, medicare etc.... that money would pay for.

Even with rates at 0.25% the US needs $27,491,854,155.15 just to service it's debt.

This of course assumes that it's paying the same rate on all of it's debt.

To further complicate the matter if the debt grows at a "reasonable" 2% per year that adds only a mere $219,934,833,241.22 to the future.

If your brave keep doing that for 10 years and I bet the compounding effect adds about 20% onto the debt figure.

Sustainable in the long term? I think not.

Our economic exponential system is close to collapse the figures have gone beyond astronomical, remember this is one country.

IR's are inflationary to service this sort of debt requires inflation, without it the system implodes.

Again you won't ever see anyone talking about this in the media.

Edited March 17, 2009 by interestrateripoff

[kilroy]

http://www.brillig.com/debt_clock/

Not sure how accurate this figure is but it highlights the problem of servicing the debt.

The Outstanding Public Debt as of 17 Mar 2009 at 09:56:27 AM GMT is: $10,996,741,662,061.05

Outstanding current US debt is the above, assuming this clock is correct.

Now at 5% IR that means to service the debt the US needs:

$549,837,083,103.05 per year

Even being charged 1% the US needs to generate $109,967,416,620.61

Just think how many schools, medicare etc.... that money would pay for.

Even with rates at 0.25% the US needs $27,491,854,155.15 just to service it's debt.

This of course assumes that it's paying the same rate on all of it's debt.

To further complicate the matter if the debt grows at a "reasonable" 2% per year that adds only a mere $219,934,833,241.22 to the further.

If your brave keep doing that for 10 years and I bet the compounding effect adds about 20% onto the debt figure.

Sustainable in the long term? I think not.

Our economic exponential system is close to collapse the figures have gone beyond astronomical, remember this is one country.

IR's are inflationary to service this sort of debt requires inflation, without it the system implodes.

Again you won't ever see anyone talking about this in the media.

so why, pray tell, would this cause interest rates to not go above 5%?

[Sinking Feeling]

Few economists see, to have managed to figure out the bleeding obvious - at least publicly - that this is the real reason for QE!

[pilchardthecat]

free money for everyone, wooooooooo

[interestrateripoff]

so why, pray tell, would this cause interest rates to not go above 5%?

To pay for it you need inflation, how ever with inflation you need higher interest rates in current economic thinking, this causes the need for higher inflation to meet the debt repayments, which in turn generates the need for larger inflation meaning higher interest rates.

Catch 22 my friend.

This is the economic apocalypse.

Debt is a killer, there is no way the economy can be productive enough to pay the debt, hence you'll end up with debt destruction which will either cause deflation or hyperinflation both of which will cause demand destruction.

I can't think of any other outcome. Even stagnation wouldn't help.

We have hit the mathematical brick wall.

Exponential growth is impossible.

[joconme]

The Outstanding Public Debt as of 17 Mar 2009 at 09:56:27 AM GMT is: $10,996,741,662,061.05

I don't mind admitting that I couldn't have read this figure 3 months ago, now I can absorb it as quickly as I could £1.50 - that worries me a lot.

[kilroy]

To pay for it you need inflation, how ever with inflation you need higher interest rates in current economic thinking, this causes the need for higher inflation to meet the debt repayments, which in turn generates the need for larger inflation meaning higher interest rates.

Catch 22 my friend.

This is the economic apocalypse.

Debt is a killer, there is no way the economy can be productive enough to pay the debt, hence you'll end up with debt destruction which will either cause deflation or hyperinflation both of which will cause demand destruction.

I can't think of any other outcome. Even stagnation wouldn't help.

We have hit the mathematical brick wall.

Exponential growth is impossible.

china will tell us to p!ss off long before this. Interest rates can go up without inflation, you need to look through to basic supply and demand for gov debt. This is what happened in the bond crash in the thirties and caused the depression, not the stock market crash of 1929.

[interestrateripoff]

china will tell us to p!ss off long before this. Interest rates can go up without inflation, you need to look through to basic supply and demand for gov debt. This is what happened in the bond crash in the thirties and caused the depression, not the stock market crash of 1929.

What I'm arguing is that there will be no way this money can be repaid back.

Even at 1% the US needs $110bn a year just to service the debt.

Lets say interest rates hit 10% that would be $1.1tr in taxes collected just to service US debt.

Do you think that is possible? Obama has already proposed a budget of $3.6tr.

http://news.yahoo.com/s/ap/obama_budget

Assuming IR's hit 10% that would mean 1/3 of that budget is needed just to service the debt and that's not paying any of it off? Also consider this was Obama opening shot the budget will probably get reduced to $2tr, now that's over 50% of your tax revenue just going on debt servicing and doing nothing productive in the economy.

Debt is going to constrict the economy for decades.

IR's are for me the ultimate stealth tax ensuring productive money gets sucked out of the economy.

[interestrateripoff]

2% growth

1

1.02

1.0404

1.061208

1.08243216

1.104080803

1.126162419

1.148685668

1.171659381

1.195092569

1.21899442

1.243374308

1.268241795

1.29360663

1.319478763

1.345868338

1.372785705

1.400241419

1.428246248

1.456811173

1.485947396

1.515666344

1.545979671

1.576899264

1.608437249

1.640605994

1.673418114

1.706886477

1.741024206

1.77584469

1.811361584

1.847588816

1.884540592

1.922231404

1.960676032

1.999889553

2.039887344

This takes 36 years.

[16bit]

The Outstanding Public Debt as of 17 Mar 2009 at 09:56:27 AM GMT is: $10,996,741,662,061.05

Thanks for printing that nice number. Doesn't mean a damn thing however - it's not debt, just a number. Remember it.

[interestrateripoff]

2% population growth starting point 6bn over the same time frame.

6,000,000,000,000

6,120,000,000,000

6,242,400,000,000

6,367,248,000,000

6,494,592,960,000

6,624,484,819,200

6,756,974,515,584

6,892,114,005,896

7,029,956,286,014

7,170,555,411,734

7,313,966,519,969

7,460,245,850,368

7,609,450,767,375

7,761,639,782,723

7,916,872,578,377

8,075,210,029,945

8,236,714,230,544

8,401,448,515,155

8,569,477,485,458

8,740,867,035,167

8,915,684,375,870

9,093,998,063,388

9,275,878,024,655

9,461,395,585,148

9,650,623,496,851

9,843,635,966,788

10,040,508,686,124

10,241,318,859,847

10,446,145,237,044

10,655,068,141,784

10,868,169,504,620

11,085,532,894,713

11,307,243,552,607

11,533,388,423,659

11,764,056,192,132

11,999,337,315,975

12,239,324,062,294

Now start thinking in 1 year we add 120m to the population. Within 4 years we've added 500m people, all mouths to feed, more jobs needed and more economic growth. You probably need more growth than the 2%.

Increased food production etc....

You can start to understand why exponential growth becomes a mathematical impossibility we will run out of resources.

[spivT]

Few economists see, to have managed to figure out the bleeding obvious - at least publicly - that this is the real reason for QE!

well yeah, QE is there to reduce the cost of borrowing, that includes the cost of gubbermunt borrowing.

[huw]

Surely existing bond interest will continue to be payable at the issue rate regardless of future rate changes?

[gf3]

2% population growth starting point 6bn over the same time frame.

6,000,000,000,000

6,120,000,000,000

6,242,400,000,000

6,367,248,000,000

6,494,592,960,000

6,624,484,819,200

6,756,974,515,584

6,892,114,005,896

7,029,956,286,014

7,170,555,411,734

7,313,966,519,969

7,460,245,850,368

7,609,450,767,375

7,761,639,782,723

7,916,872,578,377

8,075,210,029,945

8,236,714,230,544

8,401,448,515,155

8,569,477,485,458

8,740,867,035,167

8,915,684,375,870

9,093,998,063,388

9,275,878,024,655

9,461,395,585,148

9,650,623,496,851

9,843,635,966,788

10,040,508,686,124

10,241,318,859,847

10,446,145,237,044

10,655,068,141,784

10,868,169,504,620

11,085,532,894,713

11,307,243,552,607

11,533,388,423,659

11,764,056,192,132

11,999,337,315,975

12,239,324,062,294

Now start thinking in 1 year we add 120m to the population. Within 4 years we've added 500m people, all mouths to feed, more jobs needed and more economic growth. You probably need more growth than the 2%.

Increased food production etc....

You can start to understand why exponential growth becomes a mathematical impossibility we will run out of resources.

Ever heard of the rule of 72? Simply divide 72 by the inflation rate and that’s how many years it takes for money to halve in value. Quite an accurate rule of thumb.

[interestrateripoff]

Ever heard of the rule of 72? Simply divide 72 by the inflation rate and that’s how many years it takes for money to halve in value. Quite an accurate rule of thumb.

Never heard that before.

Can you show some examples of that in effect?

[cells]

Surely existing bond interest will continue to be payable at the issue rate regardless of future rate changes?

correct

plus OP highlights nominal figures which are meaningless. 1 person trying to pay back 11T is going to be impossible, 1B paying back 11T is not that difficult.

will America ever be able to pay back its national debt? yes of course it can, they can print as many dam dollars as they want.

even without printing money I think America can pay back $11T. they could potentially sell Alaska.... china would pay $5T for it (I am surprised china hasn't been increasing its territory already, $2T would buy you half of Africa, perhaps the other countries wouldn't let it happen?).

what is important is debt to GDP.

you should see the national debt as a "voluntary tax". most of the national debt is likely owned by Americans through various means such as pension funds.

[Mr Nice]

Never heard that before.

Can you show some examples of that in effect?

say you had a rate of %10.

72 divided by 10 = 7.2.

so it would take 7.2 years for the money supply to double, which all things being equal would make the money worth half as much.

[kilroy]

Surely existing bond interest will continue to be payable at the issue rate regardless of future rate changes?

not if you rely on new debt to repay old debt (the exact same model that everybody from individuals to corporates to SIVS to gov has adopted).

[kilroy]

correct

plus OP highlights nominal figures which are meaningless. 1 person trying to pay back 11T is going to be impossible, 1B paying back 11T is not that difficult.

will America ever be able to pay back its national debt? yes of course it can, they can print as many dam dollars as they want.

even without printing money I think America can pay back $11T. they could potentially sell Alaska.... china would pay $5T for it (I am surprised china hasn't been increasing its territory already, $2T would buy you half of Africa, perhaps the other countries wouldn't let it happen?).

what is important is debt to GDP.

you should see the national debt as a "voluntary tax". most of the national debt is likely owned by Americans through various means such as pension funds.

add on medicare and medicaid and the figure becomes 100tln (think it was Poole or Fisher at the FED gave this figure aboutg a year ago). Given that boomers wealth has probably halved i the last year, this figure is probably now a lot higher. What does this do for debt to GDP?

[interestrateripoff]

add on medicare and medicaid and the figure becomes 100tln (think it was Poole or Fisher at the FED gave this figure aboutg a year ago). Given that boomers wealth has probably halved i the last year, this figure is probably now a lot higher. What does this do for debt to GDP?

$100tr just for medicare/medicaid!!! I'm sure they can just raise taxes to cover that....

[sharpe]

correct

plus OP highlights nominal figures which are meaningless. 1 person trying to pay back 11T is going to be impossible, 1B paying back 11T is not that difficult.

will America ever be able to pay back its national debt? yes of course it can, they can print as many dam dollars as they want.

even without printing money I think America can pay back $11T. they could potentially sell Alaska.... china would pay $5T for it (I am surprised china hasn't been increasing its territory already, $2T would buy you half of Africa, perhaps the other countries wouldn't let it happen?).

what is important is debt to GDP.

you should see the national debt as a "voluntary tax". most of the national debt is likely owned by Americans through various means such as pension funds.

yes, it does not really matter what the interest rates are (to first order on the amounts paid). the bond coupons on the debt are unchanged, so payments are already set.

obviously if rates are low, inflation will rise and get rid of all the debt. basically what germany did following its massive debts after WW1 the US is doing now. only people who bought gold early survived with anything

[Bloo Loo]

yeah but, the interest goes to the banks who then pay tax on it and buy yachts, so effectively the taxpayer pays little or nothing.

This must be true otherwise the banks would end up with all the money, the biggest skyscapers and all the land.

Edited March 18, 2009 by Bloo Loo

[renterbob]

OK enough, this thread is the scariest freakin' thing I've ever read!!!

[interestrateripoff]

OK enough, this thread is the scariest freakin' thing I've ever read!!!

Does it just say we are all dead?

Radiation sickness seems a fun way to slowly die.

[crashologist]

Some interesting videos concerning Exponential growth here (the first link is Bartlett's lecture):

http://video.google.co.uk/videosearch?q=ex...e&resnum=4#

Also worth considering exponential growth in relation to quantitative easing and implications of low interest rates that are between integers 0 and 1%. For example it will be difficult to raise interest rates by 25 or 50 base points as these would now be big percentage increases for those on tracker/variable interest rate mortgages.

Edited July 9, 2009 by crashologist