Fun With Math: 8/1/2013

Per the June Monthly Statement of Public Debt, of the $11.9T of public debt outstanding, about $1.568T of it is bills…that is 12 months or less, and about $1.320T of it is 30 year bonds. So the $ of bonds outstanding  are roughly about the same…just a $250B difference…. a rounding error really 🙂

This is what I find amazing….the annual interest paid on the 30 year bonds is about $68B per year according to my calculations. Anybody wanna guess the annualized interest on the bills? A mere $1.5B….for an effective interest rate a little less than 0.1%. The weighted average rate on the 30 year bonds is about 5.12%….54X higher!!

That blows my mind…the annualized interest paid on this $1.6T of debt is a mere $1.5B. Where do I sign up? Anybody think the Bugatti Dealership will float me a $2M interest only loan for a Veyron??

On the other side of the equation, bonds make up only 11% of the debt outstanding, but their $68B of annualized interest expense makes up a full 31% of the $220B of interest paid over the last 12 months.

It has never been clearer to me that the whole point of all the interest rate manipulation…QE 1,2,3,XX ect… has absolutely nothing to do with stimulating the economy, stimulating lending, the housing market, the jobs market ect… No, the singular point of all that nonsense is simply to keep the budget deficit from exploding. It’s hard to go technically bankrupt if you can borrow an infinite amount of money at effectively 0%. But when they lose control…and they will…it’s game over. Effective rates on the debt outstanding are under 2%….even a mild increase to 4% and boom….it’s over. Just imagine if one day the world woke up and realized that lending $11.9T unsecured debt to the morons that run our government (with an astounding 15% approval rating) at effectively 0% (after inflation) is a pretty stupid thing to do. Don’t get me wrong…I’m not holding my breath. 30 years of stupid isn’t going to fix itself overnight…but it will work itself out someday.