Chart of the Day: US Treasury Curve 3D

Here is a fascinating chart from the guys at of the US Treasury curve over the past three decades. (click to enlarge)

The leading edge of the chart (on the left) is the interest rate that the US Federal Reserve bank manipulates¬†through the process of money printing and money destruction. That’s why it has flat-lined at 0% since January 2009. On the other end of this line (the longer portion at the back), are long-term interest rates, that the Fed has less control over. But manipulating short-term interest rates impacts these long-term interest rates too, over time.

Couple points to note:

1. This entire time, interest rates were lower than they should be as a result of Fed intervention to drive market interest rates lower than the market rate. This is what fueled the Nasdaq bubble and also the housing bubble in the US.

2. If the average American saves less today than in the early 90s, it means market interest rates are likely the same if not higher than they were in the 90s.

3. This means US interest rates will want to reset higher, to levels of 5% at a minimum during the next business cycle crash, but may very well rise to levels of 8% or more if the Fed does not step in and print massive amounts of new US dollars.

4. If US interest rates rise to levels of 10%, which I fully expect in the next ten years, the government’s annual interest bill to service its debt of around $20 trillion (assuming another few years of deficit spending) will be around $2 trillion, absorbing more than half of total government spending. Couple this with rising social security and medical spending, thanks to Obamacare, and it leaves no money for foreign wars of aggression, or any public services.

5. In other words, the US is no different to Greece, but the collapse of the US bond market will be way more spectacular, because there is no-one that can bail the US out.