Think about that.
Do you think the US will always and forever be able to pay for our over-bloated military-industrial complex and our wars of choice?
Do you think the federal housing agencies will always and forever be able to subsidize the real estate industry with money losing, non-economic mortgage loans?
Do you think the government will always and forever be able to pay on the promises they've made regarding Social Security, Medicare and Medicade?
Do you think the government will always and forever be able to extend debt-enslaving, subsidized student loans to anyone with a pulse?
Do you think the fiat ponzi central planners at the Fed will always and forever be able to manipulate the Treasury curve to whatever levels the Oracles of Delphi decide?
If you answer yes to the above, ask yourself this: how would all of these things be affected if the average interest rate paid by the US was to rise to 5%? At today's debt level of $15.6 trillion, the interest expense would be approximately $780 billion or about 35% of total government revenues. Welcome to the United States of Greece. Next stop, bankruptcy.
Housing will collapse as mortgage rates approach 8%. Every aspect of federal, state and local government spending will have to be slashed. Police, fire, schools, medical services, mail delivery, trash delivery, road maintenance and every other kind of social service will be cut dramatically as capital is diverted to pay interest on our debt.
And these sudden rate rises can happen brutally fast in our uber-connected global ponzi. Just ask Italy. 4% rates and it was bunga bunga time. Rates jump to 7% a few months later and suddenly the Vampire Squid has to send in one of their own to "save" the day. You get the idea.
I think it's no exaggeration at all to say that keeping US rates low, ZIRP low, for the foreseeable future (ie, forever) is key to maintaining the semblance of stability in the current global fiat ponzi. Nearly every major financial player on the planet is counting on this being an a priori piece of knowledge.
And there's your trade. Everyone is betting on this one idea - that the Fed will never lose control of interest rates and the US Treasury will never have a failed auction. The same way nearly every major financial player on the planet was willing to bet that US real estate could never fall for an extended period of time.
And we all know how that trade worked out.
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