Economic Statistics for 21 Aug 13…and Commentary
Here are today’s statistics on the state of the economy:
The MBA reports that Mortgage applications fell -4.6% last week, as re-fis fell -8.0%. Purchases rose 1.0%, though. Rising interest rates are what is killing the re-fi market.
Speaking of rising rates, the NAR says panic over them drove existing home sales up 6.5% to a 5.390 million annual rate in July. House prices are steady, but rising rates are forcing buyers to purchase before the interest payments get too high.
One might, if one was inclined, parenthetically remark that rising mortgage rates may signal the inevitability of rising interest rates for Treasury bonds. Or, perhaps, vice versa. Whatever.
Either way, you should keep in mind that a rise of 1% in Treasury yields works out to an additional $160 billion or so in debt service payments per year. Right now we’re paying about $350 billion a year on debt service, with a low net interest rate a bit above 2%.
If the net interest rate goes back to the historical rate of 6%, we’re looking at interest payments of $950 billion or so per year. Keep in mind that the Federal government already isn’t taking in enough revenue to cover payments for Social Security, Medicare, and Debt Service. That means that we’re borrowing money to cover part of our debt service, and everything else the federal government does. There’s no way we can afford to pay $950 billion a year in interest payments.
And we certainly can’t borrow an additional $600 billion per year to pay for the additional interest payments. That would quickly result in a debt death spiral. But we could eliminate every single executive department–including Defense– and we’d still have a $1 trillion deficit.
You should be happy the economy is moribund, because that’s keeping interest rates low, and low interest rates are preventing the aforementioned fiscal death spiral right now.