Bill Gross calls out Bernanke

[audreyh1]

The interest income received from the securities owned is turned over to the treasury. So, the higher the yield, the higher the income for the treasury. An increase in rates would logically reduce the value of the Feds treasury portfolio, but the Fed doesn't pay anything for the debt in the first place. It merely issues credits. The debt owed by us to us is irrelevant.

I'm not talking about the Fed here. I'm talking about the Federal Budget which has a pie wedge for interest it has to pay to service the Federal Deficit - interest paid to individuals/institutions that buy any new issues of US Govt debt. When interest rates go up, the Federal Deficit gets bigger because that "interest payments" pie wedge gets bigger.

 

[audreyh1]

Inflation is around 2%, and the 10yr Treasury is slightly above 2%, so near zero real, arguments about how inflation is calculated not included...

As it pertains to me and FIRE, I refinanced my mortgage late last year to take advantage of the low rates, and I only keep a small chunk of my portfolio in "cash".

The latest reading was 1.1%, so the 10yr Treasury is paying 1% real at the moment. I think it usually pays at least 2% real.

 

[Gatordoc50]

I'm not talking about the Fed here. I'm talking about the Federal Budget which has a pie wedge for interest it has to pay to service the Federal Deficit - interest paid to individuals/institutions that buy any new issues of US Govt debt. When interest rates go up, the Federal Deficit gets bigger because that "interest payments" pie wedge gets bigger.

Ok. The article is about the Fed, though. And holding down debt service payments isn't one of the Feds stated goals.

 

[audreyh1]

Ok. The article is about the Fed, though. And holding down debt service payments isn't one of the Feds stated goals.

I quoted and was responding specifically to Dallasguy who said that the Federal Government would get higher income taxes if interest rates were higher - a supposed benefit. And I pointed out that they would be paying a higher amount for servicing debt in that scenario, and so lower interest rates (for lower debt service costs) was more favorable for the Federal Government.