Tapper Tease- The Fed Backs Down on Tapper Talk
The Fed announced that they would not change their current asset purchasing program often referred to as Quantitative Easing or QE. The Fed announced they would continue purchasing $85 billion a month in US Treasuries and Mortgage Backed Securities or MBSs. As markets had priced in a “tapper lite”,this sent bond yields plummeting and gold prices soaring. The yield on 10 year US Treasuries dipped 15 basis points to 2.71% on the day of the announcement. Gold went up $55 an ounce and silver shot up up $1.47, nearly 7% in a matter of hours after the Fed announced they would not tamper with the punch bowl via a taper.
At the end of the day, the Fed’s recent decision means very little in the long run. US debt is over $17 trillion dollars. As interest rates begin to normalize, the debt service will continue to consume a larger and larger portion of our overall federal revenue. We have seen rates on 10 year US Treasuries jump from 1.6% to nearly 3% in recent weeks. That jump alone represents a $238 billion dollar increase in annual interest payments to be paid from our overspent budget. As the average rate approaches the 10 year rate, and it usually does, the total debt service will be $510,000,000,000.00 or 20% of our entire revenue collected by the IRS. If the rate returns to the highs of the 1980’s, right around 15.8%, the interest payments on our current federal debt will outstrip all federal revenue. Not good.
At least the economic policy drama is over, right? Wrong! The next round of the debt ceiling debates begin next month. We all remember what fun those have been over the past few years. The trend for debt ceiling debates have been further erosion of confidence in the US dollar, higher gold and silver prices and political gridlock.
The entire system is set to pop. Like a ticking time bomb, a new crisis is just waiting to blow up in our face. As with all the crises and bubbles before, it is impossible to time, because it all depends on the confidence of investors and market participants. When the confidence in the US dollar and our government’s ability to repay its debt erodes, and it will erode, everyone will head for the exit at once.
In my new book, American Exit Strategy, Book One of the Economic Collapse Chronicles, I use survival fiction to take an in-depth look at the real life politics and economics behind the issues that are likely to trigger a currency collapse or financial meltdown in the near future. Liberty minded individuals and those who believe in the Constitution will find this near future dystopian novel to be right up their alley. Those who are looking to be more informed about the potential threats to America’s financial stability will learn what to watch for and how to prepare themselves for an economic collapse.
Happy Prepping!
MDG
