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IPFS News Link • Government Debt & Financing

Debt Inflection Point: Bernanke Has 5 Months To Announce QE 3

We concluded that should the average interest rate on US debt rise to 5%, the annual interest payment on the debt would jump from roughly $180 million to almost half a trillion, or roughly 25% of all revenues, at which point the Weimar scenario starts getting quite realistic. Needless to say we will update this analysis shortly, especially now that rates are not only rising, but projected to go up to 4.5% or higher, courtesy of the abovementioned "economic improvement." But back to the chart: now that we have already managed to extract the benefits from the front-loaded benefits package, all that remains is the cost. And the cost in question is debt issuance risk. Which simply means that like last year, when well over $2 trillion in debt demand was unaccounted for, and subsequently satisfied by QE Lite and QE2, in 2011, when we predict net debt supply will hit another all time record, Ben Bernanke will have no choice but to enter the Treasury purchasing market once again. In other words, we expect that Jon Hilsenrath will circulate an article highlighting the ever greater likelihood of another round of quantitative easing some time in April... just a few weeks after the most recent debt ceiling vote passes, this time allowing the US Treasury to issue up to $15.5 trillion in debt, or $1.2 trillion more than the current token limit- just enough to kick the can one more year down the road. On the other hand, if we are wrong, and if Ron Paul somehow succeeds in preventing this form occurring, then all those market "strategists" who expound the benefits of the economic "recovery" when all they expect are further rounds of QE, will promptly change their tune. In other words, the entire fate of the market's 2011 closing print will depend on that critical window between April and May when QE3 may or may not be announced.

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