Government Debt and Rising Interest Rates – A Dangerous Combination

Tuesday, 17 May 2011 18:41 by The Lunatic

Everyone knows that our national debt is completely out of control. But there’s an important issue that the press seems to be ignoring: the potentially devastating effect of rising interest rates.

The Federal Reserve is responsible for implementing our fiscal policy, but the Fed can not “set” interest rates – the overall market does that, based on supply and demand.  However, the Fed can influence rates by increasing or restricting money supply.  At the moment, just like in Louisiana and Mississippi, the floodgates are wide open. The bond market is awash in “virtually free” money, which is artificially keeping interest rates at historic lows.

But here’s the crux of the issue: with the floodgates open, the reservoir will eventually run dry – and the expectation is that interest rates will then rise. What happens to our federal budget when rates go up?  It could get really ugly really quickly.

Here’s why:

If you look at the chart in my earlier post, Trying to Make Sense of the Federal Budget, (the second chart, with the Social Security and Medicare numbers removed), you will see that interest payments on the federal debt clocked in at $218 billion in 2010, or 11% of our federal budget:

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The weighted average interest rate of all the US debt currently runs about 2.07%.  Shorter term debt has a lower interest rate – less than .25% – and longer term debt has a higher interest rate – approaching 4.375%. When longer term debt is more expensive than short term debt, we have what is referred to as More...

Yet another blog article about Osama Bin Laden

Friday, 6 May 2011 17:36 by The Lunatic

It’s only been a few days since Osama Bin Laden was killed, and I can’t even count the number of news articles, opinion pieces, interviews, historical retrospectives, biographies, rants, and random comments I’ve read.

Most intriguing to me is the question of whether or not we should be celebrating someone’s death.  I’ve read a couple of interesting postings specifically on this subject, but it brings up some larger questions about humanity.

I’ve always considered the human race to be one big organism. Each individual person is like a cell in the human body, with their own specific job in life. But the overall total is what makes up the “body” of humanity. Some people do the majority of our thinking, some people do the majority of “manual labor”. Some people make it their life’s work to heal others, some provide food, and – just like the cells in our body – some handle the unpleasant tasks like hygiene and waste disposal.

And some people are like cancer. They grow up with the specific intent of killing others.

Some of these cancers are so insidious that they actually threaten the existence of all of humanity.

Our cells do fight back when threatened, and if they can’t handle the attack on their own, the heroes of our our body – the white blood cells, for example – come to the rescue. But sometimes, even more drastic measures are required.

If a patient has to undergo surgery to remove a cancerous tumor, the surgeon needs to cut out a little more around the tumor – removing some healthy cells in the process.  Consider that to be the equivalent to “collateral damage” in war (see my previous posting, Wrestling the Anaconda, for a humorous view of the “margins” that a surgeon needs to remove from around dead tissue during surgery ...)

Ok, it’s not a perfect analogy, but you get the idea.

The removal of Osama Bin Laden from the human collection was an extremely precise, laser accurate surgery – with very little collateral damage.  But 1) we left a lot of dead on the road to get to him and 2) he managed to infect others with More...