"we will provide additional support.”’bernanke, page-18

There is no doubt that once the Fed stops QE or even before that happens interest rates will go up. And the expectation are that they will go up to about 4% nominal or 2% in real terms. What matters here is, of course, the real rate.

At the moment rates are low because the economy is depressed and people want to save more in order to pay off debt (they are deleveraging) and investors to invest less because they are fearful of the future and prefer cash to any other type of asset (preference for liquidity) End of the story.

How QE is suppose to work. Banks have bonds paying low interest which the Fed buys by crediting their account with the Fed and through that process augmenting their reserves with the FED above the minimum requirements. The Fed then pays the banks interest on those moneys that the banks deposited with it, the end result being that the banks have now converted bonds into cash at little or no cost to themselves and are now in position to lend more.

When the economy picks up momentum investors will be keen in investing more and people to save less unless they receive an incentive in the form of higher interest rates.

And how much is the market anticipating that gov debt will be paying by 2025? Well, 4% which seems to be compatible with 2% real (4% with 2% inflation.

Now let's think that government is responsible for 39% of GDP and debt is at 100% of GDP? If so then in order to pay its interest on debt government would be AT MOST needing receipts equivalent to 41% of GDP, but probably MUCH MUCH LESS as payments to the unemployed and stimulus expenses will cease and the gov of the USA has 1,7 T in liquid assets some of them giving a nice return. See link bellow.

But even 41% is bellow the 46% figure for Belgium or the 43% for Italy, or the 47% for Sweden or the 44.5% for France.

http://www.econlib.org/library/Columns/y2011/Murphyprivatization.html