Two reasons the FED high rates for extended periods of time is the biggest financial bluff in world history.
1. Debt Service: the most the USA has ever paid in interest expense on its Federal debt is $251 billion in a single fiscal year. Ever. What are we on pace to pay in Fiscal 2023? $800 Billion. Fiscal 2024 if we use the FED's current dot plot forecast? $1.4 Trillion. In other words, it will never happen. We will be back to historic lows soon
2. Repo Rate: Every night, banks can send money back to the FED for reverse repo interest at the FED funds rate. Since Covid stimulus, banks have been consistently send back $2.2 Trillion every night. Before the FED went ape shlt, the interest rate they paid on that $2.2 Trillion was 0.05% or $3 million a day. That FED funds rate is now 3.25% and the FED is paying banks $195 million every day. After the November meeting it'll be $240 million every single day, 7 days a week. A billion every 4 days. From $3 million a day to $240 million a day: 80x increase. Nope.
The biggest bluff in financial market history.
1. Debt Service: the most the USA has ever paid in interest expense on its Federal debt is $251 billion in a single fiscal year. Ever. What are we on pace to pay in Fiscal 2023? $800 Billion. Fiscal 2024 if we use the FED's current dot plot forecast? $1.4 Trillion. In other words, it will never happen. We will be back to historic lows soon
2. Repo Rate: Every night, banks can send money back to the FED for reverse repo interest at the FED funds rate. Since Covid stimulus, banks have been consistently send back $2.2 Trillion every night. Before the FED went ape shlt, the interest rate they paid on that $2.2 Trillion was 0.05% or $3 million a day. That FED funds rate is now 3.25% and the FED is paying banks $195 million every day. After the November meeting it'll be $240 million every single day, 7 days a week. A billion every 4 days. From $3 million a day to $240 million a day: 80x increase. Nope.
The biggest bluff in financial market history.