A higher FEDFUNDS rate (currently around 0%) causes higher rates on treasury yields.
Here is our "effective rate" (ER) we pay on the national debt. Currently around 1.9% and 22% of tax receipts go to paying this interest. If ER goes above around 3%, interest payments are around 26% of US federal revenue. If ER goes above around 5%, interest payments are around 43% of US federal revenue.
Inflation is at 7.5%, it is impossible to bring the FEDFUNDS to 7.5% (which would amount to 63% revenue).
The only way to deleverage is to print money like crazy, right? The other ways are: reduce spendings (think economy is not ready yet) Redistribute wealth (through taxes) both of which aren't sexy
rrmhearts
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@maxwayne23, Well, the other way is to raise rates and let the debtors go bankrupt. It would lead to a "depression" and the USA would no longer be trusted to pay it's bills (as it shouldn't).
maxwayne23
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@rrmhearts, of course, but that's obviously not gonna happen, right? I also would never buy those bonds, cannot understand how anyone would still buy this shit. I think we'll see a quite sharp decline of the dollar as a reserve currency from here. What do you think?
rrmhearts
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@maxwayne23, I think they want us to think it could happen, but I don't think they actually will, because we would default on the debt. It's crazy that anyone would own a bond.
I agree, it's already started. Sanctions, China, oil-countries, El Salvador are already thwarting the dollar.
The other ways are:
reduce spendings (think economy is not ready yet)
Redistribute wealth (through taxes)
both of which aren't sexy