Interest rates of U.S. Treasury bills up this week (highest in 5 years!)

[TexasLawyer]

ruh-row!

08:15, May 31, 2006
Interest rates of U.S. Treasury bills up this week

Interest rates on short-term U.S. Treasury bills increased in the auctions held on Tuesday with rates on six-month bills up to the highest level in more than five years.

The U.S. Treasury Department auctioned 15 billion dollars in three-month bills at a discount rate of 4.720 percent, up from 4.705 percent last week. The rate was the highest since the bills averaged 4.740 percent on May 15.

Another 14 billion dollars in six-month bills were auctioned at a discount rate of 4.840 percent, up from 4.810 percent last week. The rate was the highest since these bills averaged 4.920 percent on January 22, 2001.

Separately, the U.S. Federal Reserve said Tuesday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, also edged up to 4.99 percent last week from 4.98 percent the previous week.

Source: Xinhua

http://english.people.com.cn/200605/31/eng20060531_269886.html

[MadMaddie]

1. I am not an expert in this area....but this isn't good...

Can you break it down in laymans terms....?

[TexasLawyer]

3. well, we're borrowing $2 billion per day

to keep this country going.

And because we borrow so much, and have a tax system that doesn't pull in what is needed to fund the government, and have huge current and looming financial obligations (such as a billion dollar war and soon-to-retire baby boomers), and have huge trade, current accounts and budget deficits, and have a "negative" savings rate, and on and on-- countries are starting to see us as a credit risk.

"Loans" are made through the sale of US treasury obligations. If you are going to loan to a credit risk, you're going to want more money to compensate you for your risk. This country is having to entice "lenders" with higher interest rates at the treasury auctions.

It gets to be a vicious cycle, though. Because the farther out on a limb we have to go for the loans, the more we unsettle markets, wreck our domestic real estate market, harm consumption, and become even more of a credit risk. Necessitating further increases in interest.

[Lasher]

4. I'm sure you meant to say, "trillion dollar war"

The war in Iraq has so far cost $294B.

http://zfacts.com/p/447.html

Based on an alternate path that assumes a drawdown from about 258,000 troops currently engaged in these operations to 74,000 in FY2010, CBO estimates that war costs could total $371 billion between FY2007 and FY2016. Adding that amount to the $440 billion already approved or requested, total funding for Iraq and the global war on terrorism could reach $811 billion by 2016.

http://zfacts.com/p/272.html

Very good synopsis though. On the bright side, retirees and other small investors should have a better chance of getting decent money market and bond returns. But then again, looming inflation will probably neutralize that.

[TexasLawyer]

5. oops-- meant to say trillion

you're right.

[Lasher]

7. The trickle down scam is the biggest single cause of our debt

The war in Iraq is expensive. Boomers are soon to retire, expecting Social Security & Medicare entitlements. Trade deficits galore as far as the eye can see.

But the biggest reason for the deficits of King George II's administration (and the corresponding increases in national debt) is the tax cuts, mostly for the wealthy elite. These cuts were justified, according to supply-siders, because they would trigger so much prosperity that there would be an overall increase, not a decrease, in government revenues. Their real impact can be seen quite obviously here:



http://zfacts.com/p/318.html

Saint Ronnie of Reagan, Poppy, and Dubya all supported tax cuts for rich people and their corporations. Today there are still supply-sideers around who will say that our economic woes would have been much worse without the tax cuts, or they will say that this economy is doing great and the tax cuts are working. I guess the wealthiest 1% will always be able to find zombies to buy another bottle of their supply-side snake oil, even though the policy has done nothing but make rich people richer and increase our national debt.

Edit: Provide link to graph source.

[FreeStateDemocrat]

11. The bigger problem is that the costs of this war will not end in 2016, but

but will be born for generations to come. I have trouble believing the numbers presented really reflect the true costs that have been and will be incurred (replacement of weapons systems, increased personnel costs, etc). The estimate of between 1 and 2 trillion may be closer to the truth than any government manipulated numbers. Added to the already incurred horrible primary cost in human misery means that, despite our ruling junta's statements, there can never be anything resembling a "victory" achieved.

[MadMaddie]

17. Thanks for the explanation....I knew it sounded bad!!

[Yavin4]

14. I'll Give You An Analogy

If you take five credit cards and max them all out without paying them off, then you are definitely going to be paying a higher interest rates on those cards and on all other current and future debt obligations.

[TexasLawyer]

2. Student loans

Here's one of the many very unhappy side effects...

Student loan interest rates to jump
Baltimore Business Journal - 2:51 PM EDT Tuesday
by Jeff Clabaugh
Contributor

Interest rates on federally guaranteed student loans will see one of their biggest increases ever this summer.

The Department of Education, which resets loan rates once a year based on the three-month Treasury Bill auction at the end of May, will increase the rate on Stafford loans by 1.84 percent to 7.14 percent. The Parent Loan for Undergraduate Students, or PLUS loan, will rise 1.84 percent to 7.94 percent.

<snip>

http://www.bizjournals.com/baltimore/stories/2006/05/29/daily6.html

[Drum]

6. And aren't student loans another kind of mortgage?

God, kid's are so disadvantaged by this! You get out of school and soon are beset with the payments stretching out ahead for a long way. If you aren't immediately employed in your chosen field, you have to grab other---anything!---work (if you haven't already been working while attending college as well.) All of this mortgaging gives no shelter for new folks in the workforce to save, and to concentrate their best efforts toward their chosen profession and some stability.

Sad. I had to borrow every year, NDSLs (Nat'l Direct Student Loans) or something. I hated it, and repayment steadily and right-away was very difficult. Having to enter that phase of life with a big millstone of debt on your neck is unfair. You struggle just to get to a zero-balance.

[Hestia]

9. The only hope is to pay the interest each month so it doesn't

compound. You can legally do that and wait to pay the principle when you graduate. If you pay for the principle before graduation, you'll have to continue the entire note or you will be in default. Paying the interest each month will help in the end to keep the interest from piling up.

Due to the beneficience of Sallie Mae, student loans cannot be counted in bankruptcy's. 60 Minutes showed a guy who borrowed $50k, interest had racked up the loan to $100k+. Sallie Mae has been raping people for years. Village Voice has a good series of articles on this scam too. University's don't have to tell people about the other programs out there - they keep steering students to Sallie Mae only.

[TexasLawyer]

12. Student loans finance America's future

To the extent we discourage potential college students from going to school by putting up roadblocks like higher interest rates, the more we as a nation choke off our own future economy.

We can't be "knowledge workers" if we can't afford the knowledge.

The other thing this accomplishes is to further stratify the class system in the US. The rich get to go to college-- the poor can't afford to.

I guess the poor kids can always enlist and get those good education benefits....

[Hestia]

8. They raise the rates on Student Loans but drop the rate for I Bonds?

Sheesh! Since I Bonds are tagged to CPI and inflation is non-existent, students can afford the rate increase? Jeez! Did anyone see the 60 Minutes report on Sallie Mae? Bastards everyone...

[MissB]

16. 7%?

Goodness. What a difference a couple of years makes. I locked in to a barely 3% rate four years ago.

Damn, I feel for college students today.

[Nihil]

10. *Snort*

Obviously need a coffee but I just found the source amusingly
appropriate ...

> Source: Xinhua
>
> http://english.people.com.cn/200605/31/eng20060531_2698...

... considering that the US Treasury have just boosted China's
return on the next instalment of "Buying America bit by bit" ...

[TexasLawyer]

13. Yeah, if anyone is going to know

a lot about US T-Bill auctions it's going to be the Chinese!

[hashibabba]

15. Link doesn't work on my computer n/t