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Sequester This!

In 2012, the total interest expense on the U.S. Government Treasury debt was $360 billion. For the first 4 months of fiscal year 2013, it's $151 billion. The Government spent a total of $3.5 trillion in FY 2012. Interest expense on Treasury debt was 10.2% of the total amount spent by the Government.

It gets more interesting. Assume the average coupon of Treasury debt is around 2.3% ($360 billion divided by an average of $15.5 trillion outstanding during FY 2012). Now, what happens if the Fed loses some control over interest rates - for whatever reason, not the least of which is that market forces force the issue - and the average coupon moves up to, say, 4%. By then assume $17 trillion in Treasury debt. Then you are looking at $680 billion in interest expense. Assume the budget remains around $3.5 trillion. Now interest expense is close to 20% of Government spending.

Apply that math to your own household budget. If you were spending 20% of your net income before expenses on interest payments, you would have to file chapter 7 bankruptcy and restructure your debts. The only choice the Government will have is to print more money. Not only is QE not slowing down or ending, the Fed will unequivocally have to increase QE over time. Hang on to your gold.

Sequester This Congress/Obama