Dot Plot Fantasyland Projections

Mish

The Economic projections made at today's FOMC meeting are straight from Fantasyland

4.75%-5.00% Interest Rates in 2020?

That's what one economic clown believes.

Did anyone bother to calculate interest on the national debt at even 4.00%?

Judging from the dot plot, it appears the Fed is thinking about a recession or a perfect landing sometime in the "longer run".

All this stuff is pure silliness.

Mike "Mish" Shedlock

Comments (16)
No. 1-16
jiminy
jiminy

If these come to fruition, we are in a new world. I suspect the fed is more bubble conscious than they say. Who will buy government debt if trade is restricted (fewer dollars in foreign hands) and the balance sheet is reduced to a trillion (fed a net seller) or so? I don't think the 5 percent guess is impossible.

Robin Banks
Robin Banks

Seeing that 3 month LIBOR has doubled in a year and one year is at 2.65% then 5% LIBOR is not unrealistic if liquidity dries up with the FED tightening. Just needs a major bank to have problems and we're off to the races. https://www.zerohedge.com/news/2018-03-21/deutsche-bank-plunges-16-month-lows-bank-credit-risk-spikes

JonSellers
JonSellers

"Did anyone bother to calculate interest on the national debt at even 4.00%?" Sounds like we'd have to increase deficit spending a bit. Of course with our recent tax cuts, growth will be so fast that it will probably easily pay for the increased interest payments. /sarc

Long VIX
Long VIX

"""Did anyone bother to calculate interest on the national debt at even 4.00%?"""

Already emitted US treasuries are not callable by buyer (ie the rates are not negotiable). 21 trillion debt as of now won't be affected.

The higher rates will matter only for new debt emitted in future.

On the other hand Federal Reserve has a lot of USG bonds on it balance sheet. Is there a possibility that once they mature they will be simply handed off to Treasury (in other words what Treasury is paying today in debt maintenance will be used to "balance" budget in future)?

Greggg
Greggg

840 billion dollars in interest payments. What do we cut? Israel and MIC.

Long VIX
Long VIX

Mish, interesting.

Basically, I guess, what you are saying is that US technically does not pay off the principal of US bonds once they mature, but instead merely refinances it?

Do you know percentage wise how much of maturing debt is rolled over this way? Is it refinanced at 1, 5, 10 or 30 years? I think this would be an interesting article on its own if you could explain it quantitively to your readers. Thanks!

Bam_Man
Bam_Man

The stock market alone will make them stop, by killing their beloved "Wealth Effect" - long before they get anywhere near 4.75%-5.00%.

Bam_Man
Bam_Man

But we're likely to have a recession even before then.

jivefive99
jivefive99

One of the few things I noticed in 2008 that no one seemed to be talking about was the sheer size of the Federal, state, local and private debt that costs more and more to service as interest rates go up, and the rich and powerful governments and people who issued all that debt who were not going to allow rates to go up very far .. if much at all, no matter what it takes to keep it low ...we are "debt trapped" in lower interest rates for awhile. Inflation can run unfettered, however it decides to arrive. Nothing to stop it.

AWC
AWC

Ah, but if debt doesn't matter," surely, interest rates shouldn't matter either? /s

QTPie
QTPie

You should know that “aid” to Israel is really just corporate welfare to US defense contractors since that’s where most (soon all) that money has to be spent at.

KidHorn
KidHorn

Maybe the interest rate will decouple from the FED rate. Who would have thought anyone would buy negative yielding debt? There's close to $10t of it floating around.

theplanningmotive
theplanningmotive

Mish you make an important point. Any brief glance at the monthly reports of the Congressional Budget Office already shows the hike in interest payments from the combined effect of a bigger deficit and higher average interest rates.

JeffD
JeffD

Great observation on the dot plot. WTF, indeed!


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