patrick.net

Supposedly it costs the gov. ~$1 billion (I've read its closer to $1.25 billion, but whatever might as well give the best case right?) more for every basis point increase in interest rates. So a 1% increase in rates would translate into $100 billion more spent on our debt. IIRC we're spending about $400 billion right now with rates essentially at zero (.25% technically).

Historically the US interest rate has hovered around 4-5% with spikes like what you saw in the 80's (up to nearly 20% I think) being unusual and due to the gov. forced to fight inflation.

No one is really sure exactly where rates will end up but it is a given that they will have to get over 4-5% at some point since the Fed will be required to fight inflation. Most pessimistic people (like myself) thought that the Fed would've been forced to fight inflation earlier, but instead of demanding higher bond rates from us the rest of the world's gov's have decided to engage in competitive devaluation. Probably because they have similar internal financial dilemmas too.

This has temporarily delayed the day of reckoning at the expense of making the problem bigger in the long run. Its unlikely we'll see rates as high again as what we saw in the 80's, but it is far more likely we could see a sustained period of high rates, say 8-10%, over a period of a decade or more if they decide to go lower than that like 6-8%.

That will clobber the housing market if wages don't rise in turn (which they won't) and will force the gov. to either raise taxes (probably won't happen, not even for the rich) or cut spending either on the military (unlikely, likely to be trivial for show cuts if they do) or SS/Medicare (this is the direction the gov. seems to be going with the Simpson-Bowles recommendations).

This will have all sorts of ugly long term consequences for the US, but no one up top seems to give a shit. IBG,YBG is still sane to them I guess.

Sure, but the massive money printing operation that would accompany it to pay the interest would start a vicious cycle.

Fed has already bought 2 Trillion dollars long term bond.

If the interest rate goes up, and Fed sells the bond, what does that mean?
Fed loses tons of money !!!

the govt is hosed.

on the one hand, inflation is a handy way to shrink the debt.

On the other hand, boomers (and anyone else) living on fixed income are going to get a ream-job royale.

That's a lot of voters to be screwing over.