Note that interest on the national debt either stabilizes or drops during recession.
This happens because the Fed slashes interest rates and holds them too low, too long, creating the next bubble that it eventually must react to.
Social Security and Transfer Payments
Transfer Payment Notes
- Transfer payments are redistributions of money for which there are no goods or services exchanged.
- Social Security, Medicare, Medicaid, and food stamps (now called SNAP) are examples of transfer payments.
- During recessions transfer payments tend to soar in recessions unlike interest on the national debt.
Transfer payments are also influenced by retirements so demographics come into play. That $2.88 trillion is guaranteed to rise from here.
Your Fed at Work
Between February of 2020 and February of 2021, the US Treasury had a golden opportunity to refinance long-term debt at 2.0 percent or under, most of the time well under 2.0 percent.
The 30-year bond yield bottomed at 0.99 percent. That was the secular low. The decades-long bond bull is over.
It’s important to note the Treasury could not have refinanced at the lowest of those rates because the act of doing so would have tended to push yields up, but perhaps something around 2.0 percent on average may have been doable.
Now the Fed is promising to hold yields higher for longer. The three-month yield is currently 4.66 percent. Lovely.
Fed Hikes by 1/4 Point as Expected, Commits to More Rate Hikes
On February 1, 2023, I noted Fed Hikes by 1/4 Point as Expected, Commits to More Rate Hikes
Your Tax Dollars at Work
Before a dime is spent on roads, build back better, infrastructure, or anything else, the first $3.7 trillion (transfer payments plus interest on national debt) has already been spent.
Not to worry, they say we owe this money to ourselves.
Yeah, right.
Correction: Between February of 2020 and February of 2021, the US Treasury had a golden opportunity to refinance long-term debt at 2.0 percent or under, most of the time well under 2.0 percent.
I previously said Fed instead of Treasury
A word about owing debt to ourselves
@paulkrugman Silliness
“The debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.”
— Mike “Mish” Shedlock (@MishGEA) February 5, 2023
Apparently debt does not matter because we owe it to ourselves. Ridiculous.
This post originated on MishTalk.Com.
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Mish
Ultimately, as Dr. Franz Pick said: “government bonds are
certificates of guaranteed confiscation”. “People are brainwashed”. “The
fact is that the destiny of every currency is devaluation and expropriation.”
Treasury is just “refinancing” (using asset swaps). Note: “The
basic idea behind “sterilization” is a situation in which a central bank
increases its holdings of one asset and decreases its holdings of another,
which results in little change to overall assets and also little change to overall
base money.”
Under monetarism (which has never been tried),
the first rule of reserves & reserve ratios is that all money creating,
depository financial institutions (DFIs), should have the same legal reserve
requirements, both as to types of assets eligible for reserves, as well as the
level of reserve ratios.
There is no reason
for differential reserve requirements in the first place (something Nobel
Laureate Dr. Milton Friedman advocated, December 16, 1959).
Policy should limit
all reserves to balances in the Federal Reserve banks (IBDDs), & have
UNIFORM reserve ratios, for ALL deposits, in ALL banks, irrespective of size.
I.e., Powell should
reverse course.
The
FED’s correct response to stagflation/ even secular stagnation, is the 1966 Interest Rate Adjustment Act.
Waller, Williams, and Logan seem to agree. They “believe the Fed
can keep unloading bonds even when officials cut interest rates at some future
date.”
Lending/investing by the banks is inflationary. Lending by the
nonbanks is noninflationary (other things equal). Bank-held savings are frozen,
as Dr. Philip George (“The Riddle of Money Finally Solved”), and Dr. Leland
Pritchard demonstrated (“Should Commercial banks accept savings deposits?”
Conference on Savings and Residential Financing 1961 Proceedings, United States
Savings and loan league, Chicago, 1961, 42, 43).
Counterintuitively, to avoid a recession/stagflation, you drive the banks out of the
savings business (which doesn’t reduce bank credit), while tightening bank
credit. That’s the GOSPEL.
Its entirely possible you are correct.But I doubt it. I listened to a lot of doom and gloom folks in the 70s and 80s. They were very convincing. I became very pessimistic. I was afraid to invest. Eventually I realized that the same arguments about the “coming collapse” were being repeated over and over and over, but the world kept moving on. Meanwhile house prices and stock prices just kept going up over time while these doomers kept telling us to wait for the “big correction”.I finally realized that I had wasted two decades waiting for the big collapse. Enough of that. For the last 3 decades I have made a small fortune by “getting in the game”, rather than being afraid of it. Every warning I hear today, I have heard for over 50 years. It isn’t any different to me. Sadly, I find that those who keep waiting for a collapse and have missed out on a lot of gains as a result, double down, and start “hoping and wishing” for a collapse, just to console themselves for all the opportunities that they have missed out on.