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Napanee, Ontario | Well facts are facts... and the fact is that there hasn't been a time in the 237 year history of the USA that a central bank has outright monetized the entire US gov't deficit in a year. The fact that it hasn't happend before, and is happening now, by virtue of that reality, means it is different right?
"What does it matter how much it 'costs' the govt to service the debt? The FED is buying it from money created from thin air? What would it matter if instead of 500 billion interest or 5 trillion? If the FED is willing to purchase the debt it won't matter."
This is where I wholly disagree with you. It matters very much, I assure you, how much it costs a gov't to service it's debt.
IMO, You kind of have the horse before the cart in your argument. It matters enough that the FED is willing to put up a trillion anually on their balance sheet just to keep the rates low, right?
There is point where it is percieved by bondholders of gov't, businesses, consumers, anyone - that if your borrowing costs are too high, they don't want to hold your debt anymore. Guess what they do? You really think bondholers are going to sit on their treasuries and watch as interest costs surpass the revenue the gov't can even generate? would you sit on your US bonds? or would you be calling your broker?
I think people really arn't grasping the severity of the situation. There are 17 trillion in notes outstanding. The fed is buying 700 billlion of them, and about 6-700 of those are new issues. So by and large, the rest of the market is supporting any other sales. If the FED raises the rates such that interest is a large percentage of the budget (or all - 5 trillion or whatever number you like), they are going to be buying ALL of the bonds, all 17 trillion. At once, or in very short order. Not just the gov'ts new issues. Not just 1 or 2 a year. No one is going to hold their US bonds when interest costs eclipse tax revenue.
Edited by OldMcdonald 11/21/2013 12:56
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It IS Different this Time.
