Before there was the tRump Tax Cut and Covid there were the QE's and Twist and then there was the Taper Tantrum. "Oh the tangled web we weave".But were starting to undo it before COVID came and absent the Trump tax cuts they could easilyhave unwound over the past 4 years without significantly impacting the economy. The Fed is just one lever on the economy, if the other levers allow them to unwind they will. They don't like being at near zero interest rates either.
What will happen in the economy if 10 year treasury yields hit 5.3% like in 2003?
- Thread starter KINGOFSHORTS
- Start date
Not.
The USA debt stands at $30T and a 5% yield would be like $1.5T per year in interest payments.
The tax receipts are like $3T to $4T. Medicare, Social Security, Military, Salary and other Infrastructure investments need $5T per year. That will be like a $2.5T deficit every year. Some one commented deficit drives expansion of economy. I will take deficit drives economy as keynesian theory that spend to mend the economy. That would be true if the money buys local goods. Unfortunately the goods are from china. And the spend to mend, grows chinese economy. What and when things will go wrong if that should happen??. It is unpredictable as we are into unchartered territory. Everyone is hoping that printing more money will solve the problem. Especially Buffett on US govt debt. Watch it on.
The tax receipts are like $3T to $4T. Medicare, Social Security, Military, Salary and other Infrastructure investments need $5T per year. That will be like a $2.5T deficit every year. Some one commented deficit drives expansion of economy. I will take deficit drives economy as keynesian theory that spend to mend the economy. That would be true if the money buys local goods. Unfortunately the goods are from china. And the spend to mend, grows chinese economy. What and when things will go wrong if that should happen??. It is unpredictable as we are into unchartered territory. Everyone is hoping that printing more money will solve the problem. Especially Buffett on US govt debt. Watch it on.
As I said earlier in the thread, "when the U.S. sells a 30 year treasury at 2% today they're going to be paying 2% on that debt between now and 2051, no matter what happens to interest rates between now and then. Even a 10 year note sold today at 1.5% locks in that rate through 2031." So no, you can't multiply today's debt by a given internet rate you expect in the future to get the debt payment at that point in time as you just did. That would only be the rate for newly issued debt. If fact, we're currently paying a good deal of debt at a 5% plus rate from treasuries issued over the past 30 years.
And the idea that trade exclusively enriches the country selling goods and takes away from the country buying goods plays well at a Trump rally but not among anyone who has spent any time studying economics.
The assumption is at current interest rate which is a approximation. At what rate the bonds were accumulated is not taken into account. Any further debt addition will be at current yield.
The debt stood at $9T in 2009. And in 10 years US has added $20T debt. If the yield becomes 5.3 in another 10 years ???. I am not talking about the trade ties with china. But just the balooning trade deficit with China. Then China is the major trade deficit. Then we have Japan. Arabia, India, EU. Is there any country that US has a trade surplus. So the idea is spend to mend, will mend, China, Japan, Arabia, India, EU. The Reaganomics worked fantastically in 1980 because US had GE,IBM, Digital, Boeing, Caterpillar, Jhonson&Jhonson manufacturing goods locally and had a trade surplus. Atleast not a huge trade deficit just like today. That is why the Bush era tax cuts from 2000 not only failed but pushed US into mountains of debt. Reaganomics was a stellar success from 1980 till 2000. And US had a surplus budget in year 2000. India opened up in 1994. China entered WTO in 2001. They both picked up steam with tax cut in USA. China has lend USA more than a trillion. India a quarter trillion. Both countries were bankrupt in 1990.
The debt stood at $9T in 2009. And in 10 years US has added $20T debt. If the yield becomes 5.3 in another 10 years ???. I am not talking about the trade ties with china. But just the balooning trade deficit with China. Then China is the major trade deficit. Then we have Japan. Arabia, India, EU. Is there any country that US has a trade surplus. So the idea is spend to mend, will mend, China, Japan, Arabia, India, EU. The Reaganomics worked fantastically in 1980 because US had GE,IBM, Digital, Boeing, Caterpillar, Jhonson&Jhonson manufacturing goods locally and had a trade surplus. Atleast not a huge trade deficit just like today. That is why the Bush era tax cuts from 2000 not only failed but pushed US into mountains of debt. Reaganomics was a stellar success from 1980 till 2000. And US had a surplus budget in year 2000. India opened up in 1994. China entered WTO in 2001. They both picked up steam with tax cut in USA. China has lend USA more than a trillion. India a quarter trillion. Both countries were bankrupt in 1990.
So much wrong with this, not even counting the fact that the budget surplus both happened 2 years after Reagan when Clinton was president and had nothing to do with trade deficits. I can't tell if you don't grasp the difference between a budget deficit and a trade deficit entirely or just think there is somehow a close to 1:1 relationship between the two, but either way you couldn't be more wrong.
When's the last time you took a macro class? You definitely need to brush up on the very basics of the field if you're going to engage in even a basic conversation on the subject. You are no more equipped to talk about this than I am to talk about brain surgery techniques, the difference is I don't go yapping to brain surgeons about how they've got it wrong.
You're correct. They did embark on a "balance sheet 'normalization' program" in Oct 2017. but it first involved not reinvesting principal payments on their holdings.
And ,,...if someone could gues that right 3 times in a row, they would be billionaires by now. You see, there isn't that many of billionaires around. "
- Peter Lynch
Buffet is right of course. He gets it! The concept of "debt" is not at all the same as it is to a private citizen for a government that issues bonds denominated in its own fiat money, and "has a money machine in the basement." For the U.S. Government, bonds do not serve the purpose they appear to serve, i.e., borrowing mostly from its own citizens to pay for the deficit. U.S. Treasury bonds actually serve an entirely different purpose. The U.S. does have practical constraints it should pay attention to, but an arbitrary "debt" ceiling is not one of them. What is important, over time, and in the final analysis, is U.S. productivity which fundamentally backs our fiat money. And too, deficits can be too high. They can also be too low!