Free Markets, Free People


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.

~
Dale Franks
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5 Responses to Economic Statistics for 21 Aug 13…and Commentary

  • The solution is simple.  Have the Treasury issue government bonds at 2%.  Make it well known that the Fed will purchase these bonds at a premium, say, an extra one or two percent.  The fat cats on Wall Street will oblige because they’ll make money by simply carrying these bonds from the Treasury to the Fed.
    Problem solved.
    Zimbabwe style.
    QE and ZIRP cannot stop while the government is trillions in debt and running unsustainable deficits.
    The other solution is to simple change the Fed charter to supply the government with all the funding it needs.  No interest need ever be paid.  They pretty much don’t anyway as the Fed returns to the Treasury the profit it makes off the interest in government bonds.
    http://www.nytimes.com/2013/01/11/business/economy/feds-2012-profit-was-88-9-billion.html?_r=0
    Nice work if you can get it.

  • Good news …

    Mr. Obama said the government and colleges have been in a type of arms race in recent years, with the government boosting its contributions and schools raising their prices.
    “So some point, the government will run out of money, which means more and more costs are being loaded on to students and their families,” the president said.

    … he does understand that there is a finite amount of money available to the government.

  • My solution was to trace which bonds were purchased by foreign central banks and only pay them 50% or whatever.
    I am almost looking forward to this, because the Left will suddenly have to shut up about so much stuff.
    Unfortunately, this process will disrupt the global economy, and probably happen on some poor GOP sap’s watch, and the Left will blame the GOP…

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