Wednesday, December 15, 2010

Quote of the Day: The UK Daily Telegraph

US Treasuries last week suffered their biggest two-day sell-off since the collapse of Lehman Brothers in September 2008. The borrowing costs of the government of the world’s largest economy have now risen by a quarter over the past four weeks.

Such a sharp rise in US benchmark market interest rates matters a lot – and it matters way beyond America. The US government is now servicing $13.8 trillion (£8.7 trilion) in declared liabilities – making it, by a long way, the world’s largest debtor. Around $414bn of US taxpayers’ money went on sovereign interest payments last year – around 4.5 times the budget of America’s Department of Education.

Debt service costs have reached such astronomical levels even though, over the past year and more, yields have been kept historically and artificially low by “quantitative easing (QE)” – in other words, Federal Reserve Chairman Ben Bernanke’s virtual printing press. Now borrowing costs are 28pc higher than a month ago, with the 10-year Treasury yield reaching 3.33pc last week, an already eye-watering debt service burden can only go up.

Few on this side of the Atlantic should feel smug. The eurozone’s ongoing sovereign debt debacle has pushed up Germany’s borrowing costs by 27pc over the last month – to 3.03pc. The market has judged that if Europe’s Teutonic powerhouse wants the single currency to survive, it will ultimately need to raise wads of cash to absorb the mess caused by other member states’ fiscal incontinence…

...Some say that growing signs of a US economic recovery are positive for stocks, which means money is being diverted out of Treasuries, so lowering their price, which pushes up yields. That’s wishful thinking. Sovereign borrowing costs have just surged in the US – and therefore elsewhere – because a politically-wounded President Obama caved-in and extended the Bush-era tax cuts, combining them with a $120bn payroll tax holiday…

...The market is increasingly alarmed at the rate of increase of the US government’s already massive liabilities. America’s government debt is set to expand by a jaw-dropping 42pc over the next few years, reaching $19.6 trillion by 2015 according to Treasury Department estimates presented (amid very little fanfare) to Congress back in June. Since then, government spending has risen even more. So US debt service costs, like those of many other Western nations, are expanding rapidly in terms of both the volumes of sovereign instruments outstanding, and the yields on each bond.

~ The UK Daily Telegraph


  1. The Federal Reserve controls the most important price in the economy - he price of short-term money. Now it has taken upon itself to influence the price of long term money. Anytime important prices are controlled it causes serious dislocations. These are now coming out. We caused the housing crisis and now this. Shameful!

  2. The MMT guys are probably saying "Oh, whatever. The market prices don't matter, and the government doesn't need to sell bonds to finance its spending!" ... guess we'll see where this path eventually leads us soon enough.

  3. It is certainly interesting to read how another country perceives Americas economic 'ills'. (debt).

    Our amount of debt is scary, but as long as we keeping using the solution of throwing money at all our problems instead of actually holding people accountable and trying to solve the problems, things are just going to get worse.

  4. "Few on this side of the Atlantic should feel smug."... that's right, mate. Just as much shambles over there than over here.

    Everyday Tips, here's the comeback to your common sense, by the folks at Treasury and Fed: "I reject your reality, and substitute my own"