When Interest Rates Rise – It’s Game Over

I just looked at the US debt clock.

Did you know that the total value of everything that America produces is LESS than the value of the US national debt?

Pretty shocking. But, it gets worse.

If you look at the US debt clock, you see that our ‘official debt’ is something like $17.5 trillion. THAT part of the debt is covered by the US Treasury Department when they issue bills, notes and bonds.

Unfortunately, there’s a TON of future debt rolling down on us. When you’re looking at the US Debt Clock webpage, that debt is at the bottom of the page, labelled US Unfunded Liabilities – about $128.22 trillion (right now). The US Treasury Department does NOT cover that debt, yet. (But, they will – in the future.)

That’s a lot of debt. And, where there’s debt, there’s an interest rate and an interest payment.

So, what happens when the interest rate goes up?


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When Interest Rates Rise – It’s Game Over

I’ve been paying attention to King World News for a while, but I generally listen to the broadcasts. I pretty much depend on Steve to point out important articles. And, he picked up one that caught my attention:

Embry – Propaganda, Lies & A World Headed For Disaster

And, it was THIS quote that got me started:

And with the amount of debt that’s in the whole system, this creates an enormous problem for the central planners. But the one thing they can’t possibly entertain is higher interest rates. So one of the reasons they are sitting on gold and silver prices is because if gold and silver really reflected the true condition in the world, interest rates would rise sharply and it would be game over. So that’s the problem Western central planners are facing, and they will lose, it’s just a matter of how much time it’s going to take.

John Embry was the one talking here, and his comment got me thinking about interest rates as a sign that it’s game over for the US. Now, Mr. Embry didn’t say that the price of gold and silver was the ONLY reason why interest rates are low.

Another reason is that they are lying to you about inflation.

Real Inflation

Only a complete fool would buy a bond that loses money every year. And, no one likes to think of themselves as complete fools. The US government knows this, which is one of the reasons why they’ve been fiddling with the books about inflation.

So, let’s go to John Williams of Shadowstats.com. He’s taken the method that the US Federal Government used to compute inflation in 1980, and applied that method to our current economy. Here’s a graph of that calculation:

Inflation Official vs ShadowStats (1980-based)Inflation Official vs ShadowStats (1980-based)

The above graph comes from the ShadowStats Alternate Inflation Charts page.

The official rate (CPI) is in red. The 1980-based figure is in blue.

Which one is telling the truth?

Well, you can decide for yourself, but the blue one looks right to me – especially since I know a bit about how the US Government has been fiddling with the numbers to get that red line so low.

Now, if you squint a bit, you can tell that the official inflation rate is below 2%. The Shadowstats rate looks about 9% – more than four times higher.

What would happen to America if the US 10 year T-Note (i.e., the 10 year bond) was adjusted for the REAL inflation rate?

REAL Interest Rates

Let’s see… since 6% of our taxes goes to pay the interest rate now… well… about 30% of your taxes would go to pay the interest on the US debt – for JUST the INTEREST.

Here’s the official table for current government spending:

US Federal Spending - 2013US Federal Spending – 2013 (Wikipedia)

So, you’ll need to choose which group of people to hurt.

But, wait. There’s more.

Total Debt

What about all the OTHER debt out there in the US?

Let’s go back to the US Debt Clock. Look at that part in the middle – the one that says US Total Debt.

What happens when you add 7% to the interest rate that everyone must bear?

The average person currently holds a debt load of $51,631 (as of now). Add an extra 7% to everyone’s debt payment. That would be over $3600 added to whatever they’re paying now.

Do you have an extra $300/month lying around the house?

Unfortunately, this is just the tip of the iceberg. There are all kinds of effects that happen when everyone’s spending power declines by $300/month. It ripples through the economy in a reverse of the multiplier effect. It would be a giant wrecking ball.

Have you noticed how hard the Federal Reserve is working to keep the interest rate for the 10 year treasury note below 3%?

So, keep an eye on the 10 year interest rate. When it goes over 3%… well, bad things happen – very bad things.

To paraphrase John Embry:

When interest rates rise… it’s game over.

Are you ready for this?
(Seriously, think about clicking that link.)


If you find a flaw in my reasoning, have a question, or wish to add your own viewpoint, leave a comment. Your input is truly welcome.


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