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Comment by onlyrealcuzzo | Hacker News Reader

If the market thought interest rates were never going back down, then the 30-year rate would be higher than the 1-year rate.

The bond market isn't always right, but it's usually closer to the truth than some random speculator on the Internet (wisdom of the crowd, and all).

A simple bit of reasoning with the Federal government being in debt $33T - means that if rates were to forever stay this high - their interest burden would be AT LEAST $1.75T per year.

Current Federal tax receipts (minus payroll taxes) is $1.93T.

Either Federal Tax rates are going to ~75%, the government stops doing anything beside servicing debt, we default on our debt, or short-term Interest Rates eventually go back to ~0%.

Gee, I wonder which one people will vote for.

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> If the market thought interest rates were never going back down, then the 30-year rate would be higher than the 1-year rate

The yield curve has materially revised its long-term rate expectations over the last months [1]. The 30Y at 4% seems compatible with rates not "com[ing] down all that quickly."

> the Federal government being in debt $33T

It's closer to $18tn if we exclude debt held by the government itself [2]. (It still needs to be paid, but monetizing that debt is neutral from a cash flow perspective.) So about $1bn of interest payments per year to the public, which, assuming 2% inflation, is about $570bn today ten years out.

[1] https://www.bloomberg.com/markets/rates-bonds/government-bon...

[2] https://www.pewresearch.org/short-reads/2023/02/14/facts-abo...

The spread on the 30-year is usually ~2.5% higher than short-term rates: https://home.treasury.gov/resource-center/data-chart-center/...

I'm not a bond-pricing wizard, but if for N years, you expect short-term rates to be higher than long-term rates, that has to get priced into the long-term spread (putting it above the normal spread over the short-term durations).

This absolutely does not mean the market expects short-term rates of ~4% indefinitely.

> spread on the 30-year is usually ~2.5% higher than short-term rates

250 bps is a high but precedented spread for the 30Y [1]. We're definitely in an inverted environment. Nothing in the curve suggests the market expects rates to stay high indefinitely. But they also do not portend any proximate massive cuts.

[1] https://fred.stlouisfed.org/graph/?g=knI

Or we let inflation eat away the debt, turkey style.

But for real I agree in general - where is the money going to come from? The interest on the debt and the federal receipts don’t work! I see the ratio (linked below) hitting 0.5 this decade.

What’s crazier is that % of GDP taxed according to the FRED is at historically normal levels dating back to 1950 - we’re not even at a point of low taxation relative to output.

FRED data

-------------

Debt to GDP: https://fred.stlouisfed.org/series/GFDEGDQ188S

% GDP Taxed by Federal Gov: https://fred.stlouisfed.org/series/FYFRGDA188S

Interest Payments / Federal Receipts: https://fred.stlouisfed.org/graph/?g=sOG

Except Turkey keeps adding to their debt, so it's not getting eaten away...

Also true. Most of our largest expenses - Medicare, Social Sec, Medicaid, Mil - are a mix of soft/hard pegging to inflation I believe.

Federal receipts as a percentage of GDP may be within historical norms but the population pyramid is not. The baby boomers' retirement will have to be paid for somehow: either through benefit cuts, higher taxes on the working, or more debt.

I totally agree, something has to budge. That's one of the reasons I bought a house in a cheaper area close to family and am trying to save money, but really what can one even do to prepare for this?

Mass monetary creation and a higher tax burden are guaranteed. Spend less and hold assets? Work in healthcare?

> Or we let inflation eat away the debt, turkey style.

We kinda tried that in Italy in the '70s/'80s. Spoiler: it didn't work. Globalized money markets can be assumed to be more reactive than public policy pretty much all the time now, so they will keep raising interest rates faster than governments can handle, more-than-countering expected inflation and making the debt spiral eventually unbearable.

Even Keynes expected to pay back (some) debts when the economy does well.

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