Debt Hangover…..
by Tom on November 23, 2009
in Market Musings
You know how many people were saying that the start of this current crisis is people who bought too big and too expensive of a house? And they did it on a short term adjustable rate mortgage? and when the rate started adjusting, their payments went through the roof and they ended up losing it all? Kind of like a debt hangover, now they’ve got a major financial mess on their hands.
Now I know what you’re thinking – and I’m not saying that’s the only cause of the mess we’re in. It’s one aspect of the problem.
Well, that same problem is coming back to bite us on the government side. The government is spending and spending and borrowing and borrowing and they are doing it all on short term interest rates that are the next best thing to free. Well, that’s not going to last forever. And when rates start going up, the government (you and me) are going to have some serious debt payments we’ll have to make.
I expect that sooner rather than later, that will put upward pressure on mortgage rates.
Tom Vanderwell
Wave of Debt Payments Facing US Government – General * US * News * Story – CNBC.com
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
