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Posted on 11/25/2009 10:35:48 AM PST by FromLori
It's one of those numbers that's so unbelievable you have to actually think about it for a while... Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?
How did we end up with so much short-term debt? Like most entities that have far too much debt - whether subprime borrowers, GM, Fannie, or GE - the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss." What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt… at ever shorter durations… at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.
When governments go bankrupt it's called "a default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists - Alan Greenspan and Pablo Guidotti - published the secret formula in a 1999 academic paper. That's why the formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."
The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.
So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default. The U.S. holds gold, oil, and foreign currency in reserve. The U.S. has 8,133.5 metric tonnes of gold (it is the world's largest holder). That's 16,267,000 pounds. At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.
According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months - an amount far larger than our reserves.
Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.
So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.
So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.
One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.
I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which we published last Friday. Coincidentally, the New York Times repeated our warnings - nearly word for word - in its paper today. (They didn't mention Greenspan-Guidotti, however... It's a real secret of international speculators.)
ping
GLD
The only thing that could un-default the United States, reboot the economy, rebuild are national wealth and make the dollar worth something is domestic energy production. We have 4 to 5 times the Saudis oil reserves in shale oil, coal diesel, nat gas, offshore oil, methane hydrate and on and on.
You know who understands this - Sarah Palin.
IMF Announces Sale Of 10 Tons Of Gold To Sri Lanka
Developing story. The Tamil tigers are next in line to give Bernanke the one finger salute. Gold now at $1,186 $1,187. Do we hit $1,200 today?
After our gold, oil and foreign currency reserves, the only thing left is your property. Be careful America, we could loose it all.
I pretty much expect that the imperial, tyrannical national government in the USSA will at some point start offering land and maybe people to China.
Debt is wealth, right? Right? Right?
this is difficult to calculate ...
God can do the impossible, God bless America, forgive us our indifference to what has been happening in America, have mercy on Your people, show us Your Grace and loving kindness, in Jesus name, amen.
Folks, we can not fix this situation ... God can. His word tells us ...”His mercy is new every morning...” God is the only sure thing ... we must confess our sins, and believe in Him.
My tight tin foil hat theory is we have already leveraged our energy reserves to China and Saudi Arabia. Maybe that's why loose lips Biden said, “It is a little more complicated than just Drill Baby Drill.”
YOU ARE RIGHT ON POINT! And I can guarantee that we will employ an “all of the above” energy policy after next year’s election. Nobama, being the weak shadow of a real man that he is, will crumble under the pressure put upon him from the newly elected conservative Congress
Can you add me to your ping list? TIA.
All they need to do to have the cash on hand is print money, which is EXACTLY what they will do.
Get your cash outa the bank.
Possible alternative would be to declare any commodity or resource that can be sold on the open market within 12 months as a “reserve”. As an example, declare the harvestable trees in the national forests as a “reserve”.
Alternatively, create a multi-tier reserve system with commodities. Anything that can be sold within 24 hrs, like gold, currencies, etc, is a T1 reserve. Anything that takes effort but can be sold on the market within 12 months a T2 reserve. Anything that takes 24 months to bring to market a T3 reserve and finally anything that takes 5 years or more to bring to market a T4 reserve. T3 and higher reserves would need to be discounted for risk to price and time value of money. The sum of T1 through T4 would be the current total reserve.
This would allow the US to STATE a better reserve picture but would not actually improve the imbalance. I am now of the opinion that the ONLY way out of this mess is to start a massive energy build / drill / sell program to the point that not only is the US energy independent but becomes a major exporter of energy. Then tax the exports to pay off the short term debts. If independence is established in the next 4 years and exports begun within the next 8 years, we may just have a chance.
BUT THE NUMBER ONE THING WE NEED TO DO IS STOP SPENDING MONEY THAT WE DO NOT HAVE!
However, given the current administration / Congress ... not going to happen.
Unfortunately, America has resolutely turned its face against God. He will no more miraculously save America than He has saved France, Britain, Germany or other once-Christian nations.
ok - so what does that look like exactly?
A bankrupt USA?
What happens when we default?
Does that mean we just print more and then head into hyperinflation?
Or is it something beyond that even?
Placemarker
F it. Just go Christmas shopping.....
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