Geithner to Obama – Low Rates Are History


Inquiring minds are watching “the slow train wreck coming” as Geithner quietly tells Obama that his days of enjoying low borrowing costs are just about over. This means President Obama loses the advantage of low borrowing costs for all of his ‘shovel ready’ stimulus. The U.S. Treasury Department says that what it pays in interest servicing the national debt is poised to triple amid record budget deficits:

Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials.

While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.

The analysts are taking corrective action immediately:

“It’s a slow train wreck coming and we all know it’s going to happen,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.”

The numbers get even worse as you look at them:

The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections.

Batten down the hatches…secure all watertight hatches…battle stations, battle stations,…

Sorry for the mixed metaphor. The temptation was just too great!

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