Inflation time table

Over the next 36 month,s or so, the US Treasury must 1. roll-over most of its existing long term debt { see the graph} (to China, Japan and YOU), 2. as well as sell new debt for the 2011 budget short-fall, 3. plus various off budget sheet items that will accrue to the US budget this biannual (i.e.2010-11): e.g., Boomer retirements, the savings or deficits on Health care, military adventures not in the current budget (i.e. the middle east, Japan and whatever else happens).

The total of new issuances to cover the proposed budget is vastly more than the Treasury projects so far probably 2 T $dollars per year greater. Appears to add about a trillion dollars a year at the start of this new time series It will grow exponentially over the future I would guess.

My spreadsheet, very rough, says that US interest rates must rise in 2011 to finance this roll over and new debt requirements. It appears the 21% projected gain in tax revenues (Obama budget) for 2010-2011 is not going to happen, so I show about 2.3% a year rise in the TYX is required to clear the market and place total rollover and new debt at home and abroad. I have a Monte Carlo simulation which gives this outcome about a 80% probably of being accurate (I could be wrong, so think for yourself but think along the lines of inflation being inevitable and what one does to surivive). Skip and thought of removing the stimulus: it won't happen since it will collapse the economy.

This debt operation would help savers, EXCEPT, the interest payments on debt will be made in US dollars that will be deflating in value at about 2%/ year in 2010-11 and deflating at about 1% each year in the future until someone decides it can not work and stops buying US debt (that would be Me).

Only idiots will buy any treasury debt in the next 36 months. I think even TIPS will be losers since the they are priced to lag the inflation( that which the treasury admits to have taken place). TIP owners will be behind at least a year in their losses and may not get paid at all inflation - for anything not in the core CPI the BLS puts out may not be paid to TIP holders.

This is an example of a Ponzi scheme which most of us have never seen the likes of.

I am giving up on management of the short run trades, and moving toward strategic investments such as Hard currencies, Precious metals, Agriculture products, Energy, Some Tax free bonds, and cash (scalping is like crack one you start you have to do one more). As you know, physical metal is preferred except the IRS treats it as a "collectable" and taxes gains at sale at 28%. This kind of low life behavior to discriminate again would-be survivors of the governments mess in public finance will lead to tax cheating , or more tax cheating. Off book PM accounts?.

Best, Islander

Edited by Islander, 19 March 2011 - 05:17 PM.