More Zero Interest Land Mines
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Posted 16 July 2012 - 11:35 PM
At first glance this chart on US Treasury interest payments as a percent of revenue seems rather benign. Interest payments are currently running 12% of revenue and are projected to move steadily higher especially over the next three years. Numbers like 25-30% payments to revenue are generally considered debt traps. I am not sure what the underlying rate assumptions are for this projection, but any meaningful increase in interest cost (from near zero) will have a fast multiplier effect.The constantly beating on QE3 is very overdone. Not just because it doesn’t work, but because the breakeven rates on Fed infected US Treasury doesn’t really square with QE moves. There has also been some speculation that the Fed would follow Europe and take the deposit rate down to zero. Ben himself in a Q&A in 2010 indicated there were major negatives with this. This would pretty much end the money market industry and probably kill what little income savers are still getting from CDs. Incidentally Calpers just reported a 1% return for the last twelve months.The drought has now knocked the Iowa crop into big trouble. Temperatures for the week as a whole averaged 9.3 degrees above normal. State average precip last week was 0.02″ vs normal 1.07″. Percentage of norm precip since Jun 1: KC 34%, Cinci 37%, MadisonWI 5%, Lansing 42%, L’ville 38%, Memphis 39%, LitRock 43%. Corn crop overall: Good/excellent rating total of just 31%, down from last week’s 40%. Iowa catching up at 36%. In Missouri west of St. Louis farmers feeding cattle grain–hay fields burnt up.
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