In my opinion, the issue isn’t so much that debt comes due. It’s always a constant cycle of recycling the debt.
But what is not addressed in the article or in anything I can find so far is what interest rate this expiring debt carries, and what rate will replace it.
Interest on debt is a significant portion of our federal budget. If interest on a third of it is going to double in the next year, that’s a significant additional expenditure. (Never mind the interest on all the new debt we keep pouring into the pile.)
Crank up the printing presses, it will take a long time to print $7.6 trillion dollars, even in $100 denomination … better to start now in case they have breakdowns.
Normally the Fed recycles all of it. No new printing necessary unless suddenly bond buyers go away.
HOWEVER
The fed is also engaged in QT (the opposite of printing money) to the tune of $115b per month. (see 1 below) If they are lying about that no evidence has reached my radar yet.
I have seen no evidence that bond buyers are going away but there is very clear evidence that they are, at least for now, going away from long-duration bonds and favoring short-duration bonds. (See 2 below)
. 1
Mr Wonderful said October is pivotal and said by then we will know if we are headed to a recovery or to a depression, a literal depression he said. He said he’s leaning toward a depression right now. I hope he’s wrong.
How much of this debt is already in the FED’s portfolio of US Treasury Holdings is the question. If a bunch of this debt is in any other entity’s holdings there is a good chance that only the Fed will be the buy of the replacing issue.
China will buy it up of course. It’s a great program with no strings attached. Just ask any 3rd world country around the world they have done this for.
if private investors etc. “did not want bonds,”
they would simply sell them. It is silly to imagine thousands of retirees, and university endowments etc. all deciding “I don’t want my bond any more but I am not going to sell them. I am going to wait until X day and we will all together as one simply not renew them on that day.”
The bond market is open every single business day.
Here is a picture of a physical bond market trading floor
In the world of bonds “not buying” something is a metaphor.
It means “Not buying at that interest rate.” It’s like going into a bank and asking for a loan at 2%. The bank laughs at you. You ask for a loan at 3% and it hands you the money.
When you do it we call the bank a “lender.”
When the US gov’t does it, we call the bank a “bond buyer” but it is the same thing.
It’s great speculation on whether or not the re-issued bonds will be bought up or not.
What is no speculative is that the new bods will carry a higher interest cost to the USA. (And if there is weakness in the market for the new bonds, won’t the USA have to increase the yield further to attract buyers?)
I don’t think there is any speculation at all (except by people who know little/nothing about bonds.) People who don’t want them sell them. They don’t wait until the termination day, that’s just a round number.
Correct and that is the rub, the ONLY rub.
Below is a yield curve from today and from last year.
Notice not only the inversion but also the red circles.
Mr Wonderful said a recession is imminent anyone saying something else is lying to you. If you have Christmas shopping might be best to get that done before December. I feel we are in for a bumpy ride people.
Unless a person is betting that the war in Israel or some other crisis will cause the Fed to drop rates then the “normal scenario” below is probably true
Duration is risk that must be priced into the curve. Short duration always changes faster than longer duration debt. If borrowers were just going to pay off their debt when it matures no big deal. But reality is individuals, corporations, and especially our government, tend to roll the debt into new issues when it hits a maturity point.
