“Given the razor’s edge the financial system now teeters on, analysts estimate a Treasury Bond interest rate of 3.5% is about where a death spiral begins. Of all the 10-year Treasuries held in the world, the Federal Reserve owns a bit less than a third. Should the interest rate tick up toward its normal 4% to 6%, the Fed would need to “print money” just to break even, meaning more bonds need to be issued to put it into play. What seemed “manageable” is transformed into a runaway, self-compounding event. Rising interest rates also trigger serious effects outside the bond market. Derivative implosions, for one. The spiral starts when buyers see the Fed losing control of artificial low rates, which is where they get the 3.5%. The spiral ends when the entire federal budget goes to pay interest. The numbers suggest this could take only a few months, start to finish. Somewhere near the final rollover look for near-total wealth destruction when DC seizes nominally private accounts—retirement, savings, checking or what have you, partly on the theory private transactions are criminal transactions until proven otherwise. But mainly because the EU and South America have shown them they can. And what they can do, they will do.” – Ol’ Remus, The Woodpile Report, August 27, 2013
Jim’s Quote of the Day:
