Day: January 25, 2025

TKL: How bad has the US debt crisis become? Interest paid to overseas holders of national debt hit an all-time high of ~$205 billion in 2024.

US Treasury interest paid to foreigners has jumped 49% over the last 5 years. This comes as total interest costs have DOUBLED during this time and hit a record annual rate of $1.1 trillion. Currently, ~26% of the $36.2 trillion in US national debt is held by foreign governments. Interest expense will soon be the US government’s biggest expense. What’s the long-term plan here? submitted by /u/XGramatik [link] [comments]

Kill the Penny? DOGE tweeted on Tuesday that the government spent $179 million in fiscal 2023 producing about $45 million worth of cents. That isn’t a great trade.

BARRON’S – Elon Musk wants to save the U.S. taxpayer trillions of dollars. Every penny counts. Musk, the de facto head of President Donald Trump’s new Department of Government Efficiency, or DOGE, has suggested that trillions in annual savings are possible. The federal government spends about $7 trillion a year. So getting rid of the penny would save the government—and by extension, U.S. taxpayers—a bit less than $200 million a year. At $200 million, that would be 0.02% of Musk’s trillion-dollar goal. The effect on the economy would be equally minuscule. Canada got rid of the penny more than a decade ago. Its economy hasn’t noticeably suffered from the coin loss. Retailers north of the border simply round up or down to the nearest nickel. If a Tim Horton’s coffee costs $3.01 after tax, the buyer pays $3. If the math works out to $3.04, the price paid goes to $3.05. As for the business of mining the metal that goes into the coins, the change wouldn’t move the needle. Annual penny production accounts for roughly 0.1% of annual global zinc demand and about 0.001% of copper demand. No one should flip out over that. There would be some job losses. Contractors make coin blanks for the U.S. Mint. Still, the biggest economic impact might be the loss of those machines at theme parks and monuments that squeeze pennies into souvenirs. The penny issue feels like small change. It might be DOGE-worthy, but exactly where the agency will focus its efforts is hard to say. It is less than a week old. A lot of its energy is likely to go toward working with various government departments and agencies to reduce regulations and change procedures. Source: https://www.barrons.com/articles/bridgewater-ray-dalio-debt-crisis-risk-de845773?mod=hp_WIND_B_2_1 submitted by /u/FXgram_ [link] [comments]

TKL: Lower rates AND lower inflation? President Trump just “demanded” that rates are CUT and said lower oil prices would fix inflation. We spent hours researching this and it would take a MASSIVE drop in oil prices to get 2% inflation. Is it possible? Here’s the math.

This week, President Trump claimed to have a solution to the Fed’s 3+ year battle against inflation. He demanded the OPEC lower oil prices and the world drop interest rates. President Trump has also insisted that the US produces more crude oil throughout his campaign. https://preview.redd.it/76orrqs026fe1.png?width=744&format=png&auto=webp&s=20a13a7ec6c4d47f9797e2a852a746f9a0b5a42e So, is this mathematically possible? At a high level, there certainly is a strong correlation between CPI inflation and oil prices, as seen below. Oil prices, categorized as “energy” in CPI, make up ~8% of the index. Energy costs also flow into other components like Food. https://preview.redd.it/kpi8v42326fe1.png?width=748&format=png&auto=webp&s=e5936b832c5f20cca7a04e6bf999aaa818dc5ba8 In this study published by the Fed itself, they examined the impact of a 10% increase in oil prices. The increase raises Energy CPI by +2.3% over 2 quarters and then it remains relatively stable. Food CPI rises +0.3% and Core CPI rises +0.1% over the next 8 quarters. https://preview.redd.it/myd41a8526fe1.png?width=746&format=png&auto=webp&s=86eae11d6c735555d233c04a9b5c7f5c702ca85f Direct effects are seen immediately, as evidenced by the increase in Energy CPI. Secondary effects take time to flow through, but they are also material. For the sake of Trump’s plan to lower prices, let’s assume inflation reacts proportionally to a -10% drop in oil prices. https://preview.redd.it/s3kt5r1726fe1.png?width=746&format=png&auto=webp&s=055ba0fbfdcc2c514cbb67d90219f9d45ccde087 Based on this math, we can make the following general rule of thumb: A $10 DECREASE in oil prices would LOWER inflation by 0.2%. Keep in mind, the drop in oil prices would take 6-8 quarters to fully impact CPI inflation, as outlined above. Trump wants IMMEDIATE rate cuts. https://preview.redd.it/l596ky8926fe1.png?width=727&format=png&auto=webp&s=7a1550325e1bf0273c016768ef1e3ad193167421 Core CPI is at 3.2%, 120 basis points above the Fed’s 2% target. That’s 6 intervals of 20 basis points, or a total of six $10 drops needed in oil prices. Oil prices would need to fall by ~$60 for inflation to hit 2%. This makes a TON of assumptions, but let’s go with it. https://preview.redd.it/3klne7ib26fe1.png?width=900&format=png&auto=webp&s=39af28c5ea6020d1e0e68f3f27ba18b5cbc0c620 As of Friday’s close, oil prices are trading around $75. A $60 drop would mean we need to see $15 oil prices, or a whopping ~80% decline. This also does not account for the fact that Trump wants IMMEDIATE rate cuts. Oil price impacts on inflation take 2+ years to play out. https://preview.redd.it/w1f37itd26fe1.png?width=706&format=png&auto=webp&s=c4e8fc44764daf4117fb0524dc31f8641683d585 Is it possible for oil prices to fall to $15? The short answer is yes, but it’s HIGHLY unlikely. For example, during the 2020 pandemic, oil prices fell to -$30 as the world went into an economic lockdown. A shock-type event is needed for an 80% drop in oil prices. https://preview.redd.it/4a17bm7h26fe1.png?width=900&format=png&auto=webp&s=4fd56364c40275f3bf42c1c03a52be70e9d716ea Most US producers would not even be profitable at a crude oil price of $15/barrel. As shown below, existing wells have breakeven points of $31-$45 per barrel. New wells would need oil prices to be at least $59 to break even. US oil would not survive at $15 crude oil. https://preview.redd.it/jrhob1nk26fe1.png?width=668&format=png&auto=webp&s=67f75c747d00cc9e23caaa9a42b013a94ca04953 Even if you based the math of headline CPI, it would still require a $45 drop in oil prices. With headline CPI currently at 2.9%, a $45 drop would theoretically drop inflation to 2.0%. That’s a 60% drop in oil prices that would have to come immediately. Can Trump do it? https://preview.redd.it/2nl2o6bn26fe1.png?width=786&format=png&auto=webp&s=7bd4d103d3b64448334fe9149b03097251290215 In summary, there is a high correlation between oil prices and inflation. However, based on a variety of assumptions, we need to see an 80%+ DROP in prices to get 2% inflation. Is Trump’s plan possible? https://preview.redd.it/xjsrou3q26fe1.png?width=730&format=png&auto=webp&s=98ddbc831c1a4aeec4193e4122d52ebf7f95145b submitted by /u/XGramatik [link] [comments]

Danish officials are “utterly freaked out” & in “crisis mode” after Trump told them he intends to acquire Greenland during a 45-min call.

Trump was firm in his pursuit to acquire Greenland during a call with Denmark’s prime minister, according to the Financial Times. Five European officials who were briefed about the call were in shock to find that Trump is serious about acquiring Greenland. The officials hoped he was joking, or his statements were just a negotiating tactic. “[Trump] was very firm. It was a cold shower. Before, it was hard to take it seriously. But I do think it is serious and potentially very dangerous,” one official reportedly said. “The intent was very clear. They want it. The Danes are now in crisis mode. The Danes are utterly freaked out by this.” “It was a very tough conversation. He threatened specific measures against Denmark such as targeted tariffs.” submitted by /u/FXgram_ [link] [comments]