Saturday, July 30, 2011

US Interest Coverage Ratio

The liars in Washington would like you to believe that a default on Treasury debt is imminent. The truth is that the US takes in ~$2.1-2.2 trillion in tax revenues and pays ~$.5 trillion in interest costs. This means that the US has $1.6 trillion in cash flow available to pay other obligations after the legally required interest.

So the key statistics:

Revenue: $2.1 trillion
Interest: $.5 trillion
Cash for Discretionary Spending: $1.6 trillion

Interest Coverage Ratio: 4.2x

This is why treasuries are pricing in ZERO risk of default. The treasury still has plenty of money to pay bond holders. It just doesn't have enough to pay for three wars and socialist healthcare (Social Security, Medicare/Medicaid, Obamacare).

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