What I really want to know is if the Fed increases the interest rate will that increase the interest paid on government debt? If so, how exactly?
Sorry for this basic question, I'm sure it's been asked before.
Since the government remains in deficit, it needs to borrow to pay back previous debt. That means that it must borrow at the market rate.
If the Fed allows the market rate to rise, the government will pay much more to borrow in order to pay back debt. This will send the debt service portion of the budget deficit skyrocketing, and so will the national debt.
The fallacies of intellectual communism, a compilation - On the nature of power
Ah, that's what I need to know! Thank you. I got mixed up into thinking about how it would effect interest paid on existing debt while disregarding new debt.
The US government does not really borrow US dollars from US banks to pay for its expenses. The US congress passes laws that authorize Federal Reserve Board (via Chairman Ben Bernanke) to buy some paper and then print a bunch of new interest bearing paper currency instruments in varying amounts with the promise of US government repaying these loans in US dollars at the future dates specified (when they become due). The FED then auctions off these freshly printed US T-Bills, Bonds, or other Securities at US Federal Reserve Bank public auctions (at discounts less than face value and/or present worth) to mostly foreign manufacturers, foreign banks and foreign individuals in China, India, Brazil, Pakistan, and other industrialized countries in return for the US dollars that these foreigners earned by making consumer goods for US citizens. The US government then spends these US dollars, plus US dollars collected by taxation, on various government expenses.
Foreigners continue purchase these freshly printed paper US Bonds (at a discount from face value) only because these US bonds can be redeemed by purchasing title to privately owned land, hotels, farms, businesses, casinos and other assets that were created by previous generations of US citizens and located in the USA, before the de-industrialization of the USA, and instead of Gold as other nations do.
Foreigners continue purchase these freshly printed paper US Bonds (at a discount from face value or CV) only because these US bonds can be redeemed by purchasing title to privately owned land, hotels, farms, businesses, casinos and other assets that were created by previous generations of US citizens and located in the USA, before the de-industrialization of the USA, and instead of Gold as other nations do fro their currency
This debt is called the “National Debt” that obligates the future generations of US citizens to repay the holders of these freshly printed US currencies when these currency instruments come due. The purchasers are no longer sure that these freshly printed US currencies will be repaid in the future, so these industrious foreigners deposit these currencies in US banks (actually sell these instruments to US banks at a discount for US dollars) and then spend these US dollars to acquire title to real estate and other US assets that were created by generations of previous US citizens.
Chairman Ben Bernanke cannot disobey congress, or Congress would fire him and find another person to continue the Ponzi scheme that finances our US government's financial activities and expenses.
Maybe the US government should hire Jeff Skilling, Bernard Madoff, Scott Rothstein, Eddie Fastow, Allen Sanford and the other lesser known financial wizards as consultants to advise the US treasury department with their expertise concerning "How to operate a Ponzi Scheme"! They might be the best qualified people in the USA to run the FED.