Friday, March 20, 2009

Another day, another 200 billion to pay

More taxes to pay one day for the trillion printed today ...
Fiscal aspects of quantitative easing (wonkish) - Paul Krugman Blog

... My back of the envelope calculation looks like this: if the Fed buys $1 trillion of 10-year bonds at 2.5%, and has to sell those bonds in an environment where the market demands a yield to maturity of more than 5%, it will take around a $200 billion loss.
It's comforting that we'll pay I guess. I assume the interest rate more or less works out to something near the Fed rate, and that Krugman has corrected for inflation with the loss amount.

Let's assume there are 100 million Americans who'll be paying back the $200 thousand million. That's $2,000 apiece, more for high earners so say $6,000 if you're doing ok.

That's a lot of money. On the other hand, if I'm unemployed for a few months I'm out far more money than that. Adjusted for risks and so on it seems like a reasonable bet even for those doing relatively well.

For folks not doing so well it's a bargain. Of course if the market were to recover it would be a real bargain for us.

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