US Debt is getting more Expensive for the Taxpayer while the US digs itself in deeper

Tuesday, June 9, 2009

News came out yesterday that shows the US Treasury Bonds yields are going up at a record pace. Well, these yields are not fixed and are set on an open market based on demand - the more demand, the less the yield and vice versa.

For the US taxpayer, it means that the price of funding their enormous debt (11 Trillion Dollar) is becoming more expensive (a lot more…) and if the trend continues, it will inevitably have a stark impact on the value of the dollar.

Just think, for every 100 Dollars the US borrows, it now needs to pay back 104.35, for every 1,000, it needs to pay back 1043.50, for every million, it needs to repay 1,043,500, for every Billion, the cost is 1,004,350,000 and for every Trillion the number is 1,004,350,500,000. Translate that into the 11 Trillion Dollars that the US is in the hole for, and you’ll get an annual interest rate of 47,855,500,000 US Dollars. I’d say we have a bit of a problem here…

If you take that staggering number of almost 48 Billion Dollar payment, and divide it among the 350 million US taxpayers, it totals about $178 per person – to pay back the principle, it would cost almost $32,000 per person – more than average annual wage for an American. So the question on the minds of Forex online traders is “how is this going to work if the US does not devalue their currency to offset these costs?”

Keep in mind that this week the US is auctioning off another 65 Billion Dollars in debt. Considering that the cost is getting higher for them right now, this only adds to the problem. The issue is beginning to overtly affect the way in which the US’s leading lenders, namely China, view the US.

A leading banker in China was quoted recently as saying in a cynical manner that the US should start issuing their debt in Yuan, the Chinese currency, rather than dollars. While this was an obvious joke, my mother always taught me that within every joke lies some semblance of truth.

With the US now owning 60% of General Motors and after the Supreme Courts decision to delay the sale nearly 70% of Chrysler, one has to wonder who really owns it. If the US taxpayer is in hock to China for more than 2 Trillion Dollars (a liability of $5,714 per person) while owning 50 Billion Dollars worth of GM (an asset of $157 per person) – do the math.

The trading in the Dollar has picked up in the past two sessions, as Forex online traders and Forex blogs predict a US recovery – but I ask you here, look at the numbers yourself and decide whether a recovery is indeed “just around the corner”.

And one last thought, if it were, the US GDP would need to swell to 48 Trillion Dollars for it to do so, and that would only pay off its obligations in 10 years. The US GDP currently stands at 12 Trillion - Just something to think about.

3 comments:

Anonymous June 9, 2009 at 10:55 PM  

ur sumup is perfect!!!! NO WAY is recovery near!!! I mean, according to the numbers their economy went up 0.4%, but I think is just a lucky strike… here are more numbers shown
http://www.ac-markets.com/forex-news/forex-alerts-2009-6-9-16-37-CET-US-economic-optimism-in-June.aspx
CIAO !!!! :) :)

pallavi singh June 11, 2009 at 6:23 PM  

Thanks so much my friend.

Keep visiting :)

Have a nice day!

Anonymous June 16, 2009 at 11:50 PM  

Thanks for taking the time to answer me !!!!
G´day to u too

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