Why do people think ...

Discussion in 'Economics' started by GlobalFinancier, Apr 5, 2006.

  1. Why do people think that higher interest rates mean a larger debt burden for the US govt?
    Even if it issues $500 billion and rates are 5% higher, that's only $25 billion... Higher interest rates do not lead to higher interest payments on existing debt since it's fixed...
     
  2. Because it is continually rolled... and newer issues compound the debt.

    Except for the 'conundrum', longer term rates should be higher. And recall that much recent debt financing was done with the shorter end of the curve, so in that respect, it was more interest rate sensitive (down as well as up, to be fair).

    Of course, since it is fiat money, does it really mean anything? I mean, what's $25 billion USD between friends...
     
  3. The reason is that the Clinton Administration, in order to cook the books and show deficit reduction, changed to the benchmark 10 yr note as opposed to the 30 yr. They mortgaged the future for the short term gain of lower debt service. Very sinister. Thus, the rates are rolled more quickly.
     
  4. Thanks.