Thank God for Democrats - who needs a functioning economy anyways?!
Posted on 03/25/2010 7:55:32 AM PDT by SeekAndFind
Not many people noticed amid the Democrats’ struggle to jam their health-care bill through the House, but in recent weeks U.S. Treasury bonds have lost their status as the world’s safest investment.
The numbers are pretty clear. In February, Bloomberg News reports, Berkshire Hathaway sold two-year bonds with an interest rate lower than that on two-year Treasuries. A company run by a 79-year-old investor is a better credit risk, the markets are telling us, than the U.S. government.
Warren Buffett’s firm isn’t the only one. Procter & Gamble, Johnson & Johnson, and Lowe’s have been borrowing money at cheaper rates than Uncle Sam.
Democrats wary of voting for the health-care bill may have been soothed by the Congressional Budget Office’s report that it would reduce federal deficits over the next ten years. But bond buyers know that the Democrats gamed the CBO system to get a good score.
The realities, as former CBO director Douglas Holtz-Eakin pointed out in the New York Times, are different. The real cost is disguised by the fact that the bill includes ten years of revenue but only six years of spending. It includes $70 billion in premiums for long-term care that will have to be paid out later. It excludes $114 billion in discretionary spending needed to run the program. It includes nearly half a trillion dollars in unrealistic Medicare savings.
Holtz-Eakin’s bottom line: The bill will not lower deficits, but will raise them by $562 billion over ten years. Treasury will have to borrow that money — and probably pay much higher interest than it’s paying now. Moreover, once the bill is fully in effect, the Cato Institute’s Alan Reynolds points out, its expenses are likely to grow at least 7 percent a year — significantly faster than revenues. At that rate, spending doubles every ten years.
No wonder Moody’s declared last week that the Treasury is “substantially” closer to losing its AAA bond rating. It’s not only the federal government that is heading toward insolvency. State governments will have to spend more under the health-care bill — $735 million in Tennessee alone, according to Democratic governor Phil Bredesen.
And state governments are already facing a huge problem called pensions. The Pew Charitable Trusts estimates that state-government pensions are underfunded by $450 billion. My American Enterprise Institute colleague Andrew Biggs argues in the Wall Street Journal that the real figure is over $3 trillion.
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The list, ping
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Now that’s CHANGE...Thanks Obie!
Technically that cant really be true because 1) the government can create new money to pay the interest it owes as it does now, and 2) the government can take Berkshire Hathaway's money in new taxes to pay it's obligations. The big problem is eventual inflation if there is ever a recovery.
Future :Either depression, inflation or a mix of both, no happy ending.
I am surprised that Bloomberg News reported this. They have had a pro-Obama tone to their TV outlet.
WAKE UP AMERICA!!
What the market is saying is that any inflation risk and consequent hikes in interest rates on U.S. Treasury securities are likely to be at least two years away.
To be more detailed, the Federal Reserve can create more liquidity in the market place making it easier for the Treasury Department to fund the debt and its interest, either via higher taxes or via inflation.
The talk in DC of strengthening the ties between the Fed and the Treasury Dept is bad news. Some will say the Fed should cease and desist, and while I support this from a theoretical standpoint, it aint going to happen. The next best thing is to get more distance between the Fed and Treasury/Congress, not less.
bflr
RE :”What the market is saying is that any inflation risk and consequent hikes in interest rates on U.S. Treasury securities are likely to be at least two years away.”
I fully agree that as long as the country is in a depression ,inflation cannot skyrocket. In fact international trade keeps inflation down too different than the 1970s. Interest rates wont go up until the Fed sees signs of inflation if then.
My understanding is that the Federal reserve is funding most of the US nation debt by buying US treasures with money created as digits on a computer. In theory this money has to be paid back with interest, but the fed gives that interest income back to the federal government. Furthermore, banks get the made up money from the fed at 0% and loan it to the government at 3% rather than small businesses because that is the safest investment.
That is my understanding too. It is one of the tools that the Fed has to create liquidity. I agree with your analysis that much of the liquidity is going to fund the national debt, not going to "lubricate" the open market.
If they can’t sell bonds, there is one alternative.
Hyperinflation.
Well, there is one other alternative, they could cut spending.
But that’s like moon-made-of-green-cheese, tooth fairy, Easter Bunny stuff.
you made good sense...til i read yer tag...8^}
The reason for this is obvious, to me anyway. Why would banks loan to small businesses that a) could default, and b) will be crippled by future taxes to support the national debt, ? when they can just loan it to the US and make a 100% safe profit? (this it contrary to the theme of the article a bit.)
The liberal Keynian theory of 2009 was when the government spends lots of money (that they borrow) we all follow borrowing and spending , and we get a recovery. This is what they claimed that ‘all the experts said’ anyway.
They also believe a temporary small tax credit will fool the businesses and banks to go out on a limb and hire people, even knowing massive taxes are on the way. I dont even think that tax credit trick was tried in the Obama 2009 stimulus bill though. They just spent the money. This is because Washington,, especially Obama, is smarter than everyone else and can trick us to do what he wants.
You mean the ‘spending is the redistribution’ tag? Yup, we been trained to believe it’s only redistribution if the government taxes us in the present for it, not taxing us in the future. Future taxation is called current growth.
I got in an argument with a liberal yesterday giving me the Jesus/Christian compassion = free health care argument and he tried to claim that because my personal taxes are not going up right now to pay for it(only the rich now) , it’s love for everyone. Again, medicare prescription drugs WAS redistribution as is Obama care.
Glad you mentioned my tag, I love it :)
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