Interest rates

I have always thought it was better, and far less painful, to learn from other people’s mistakes than to make the same mistakes myself. That thought might be relevant in light of today’s news that in Italy’s last bond sale this week the interest rate they had to offer jumped from 4.628% to 7.814% on two-year bonds, and jumped from 3.53.% to 6.504% on six month bonds. (today’s news is that their three-year bonds just jumped to 8.13%)

US Treasury notes currently sell for about 2.70% interest rates. At that rate, the US government pays about $454 billion per year in interest payments. Were the bond market to decide that our debt was as risky as Italy’s (for example, because our government is perceived to be incompetent and unable to reduce it’s debt), and require an 8% interest rate to refinance our debt as it became due, US interest payments would rise to around $2 TRILLION per year, half a trillion more than we currently borrow each year.

How bad does it have to get before the voters force Congress and the President to do something effective about this problem?