Monday, August 22, 2016

Some numbers to churn around and cogitate upon

The question arose as to the assertion made a number of times on this blog:  that the Fed is trapped.  It cannot raise interest rates because that will damage the rosy scenario that the government is trying to sell to the public.  Is this truth this rosy, or is there a problem here?  That is a question I seek to answer as best I can.

From the source Treasury Direct dot com, I obtained some numbers on the debt and interest paid thereon.

Here is a table showing interest paid for this year:

For a longer term perspective, here's one for the last several years:

Just eyeballing these numbers shows a few things.  One, that the number jumped rather suddenly between 2003 and 2008. The increase was about 50 per cent.  What happened in those years?  The Fed Funds rate increased from 1 percent to 6 percent ( if memory serves ).   Early on in the Bush administration, deficits replaced surpluses, while the interest payments went down.  Toward the end of the Clinton years, surpluses kept the interest payments in check, but the Fed Funds rate was high, and you should have a decrease in interest payments, but that didn't happen.

Conclusion:  deficits and interest rates are correlated.  I'd have to run a regression analysis to quantify it more precisely, but I don't have my trusty software package available anymore.  Eyeballing it is sufficient enough in order to get the general idea.

Deficits have continued to be high.  According to the numbers in an exceedingly detailed table, the US debt climbed $780 billion in 2015.  It has nearly doubled since the beginning of the Obama years.  It has more than tripled since the Bush years.  Incidentally, interest payments are outstripping economic growth rates.  It shouldn't be too hard to see where that ends up, especially when interest rates go up.

If interest payments double from what they are now, there could be a problem.  Not only are interest rates higher, so  will taxes be in order to pay for servicing the debt.  What does that do for economic growth?

Just saying.

Interest rates cannot stay this low forever.  Sumfin' wrong here, boss.

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