Posted on 06/06/2010 7:28:41 AM PDT by Zakeet
Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best.
Total US debt today was $13.06 trillion. Total debt on March 6, 2009 was $10.95 trillion. The government has spent $2.1 trillion dollars to create a bear market rally which has now fizzled, and to fund a fiscal stimulus that is now dancing its death rattle. GDP will now gradually roll over, the unemployment rate will once again start increasing, diffusion indices, manufacturing and all other economic output will begin declining, but not before the bill is in. It cost Americans $2.1 trillion in debt to generate a 14 months sugar high (for which all will promptly receive a much higher tax bill). Luckily, we will never pay this debt off, so perhaps "the joke is on them" after all.
I think the problem stems from the fact that we don’t have the money to pay back what we’ve borrowed. So when people start redeeming their IOUs, there’s not enough funds to cover them.
Last I heard, it was facing the same fate as the budget - bouncing around somewhere in Never Never Land without anyone really willing to bring the matter to a head.
Personally, I'm not particularly concerned about unfunded pension liabilities, civil service salary levels or ObamaCare. We can't afford any of this nonsense, and inflation/depression will take if Congress fails to act properly and promptly.
Historically, pensions rapidly become almost worthless. Government bureaucrats suffer more than any other occupation because they produce nothing of value and thus have nothing to exchange for goods and services.
many families are walking a razor thin line as well....
Just Seven Commandments from the Austrians?
Not even God is that efficient.
Humor aside, that's an impressive statement of economic reality.
The TREASURY is redeeming the debt, this means that more worthless money is being created to buy bonds. It is as if you printed out that much cash on your office printer and managed to pass it off as good money. It makes all the money in circulation worth that much less.
We have no way of actually redeeming the debt, we are in the hole far beyond any real or imagined way of ever paying it off. The nation is in fact bankrupt to a degree that is mind boggling. The “recovery” is as real as hen’s teeth and frog’s hair, tax revenues are dropping rapidly even as government expenditures skyrocket.
The country is in the same shape as one of Mark Twain’s characters who stuck his thumbs in his suspenders, poked out his chest, grinned and proclaimed something like, “It’s a wonderful country, I came here flat broke and just two years later I owe six millions of dollars”.
Anyone who has the ability to go back in the woods and live like Davey Crockett should probably do so, those of us who cannot are in for a rough time.
I stand corrected.
“When the world demands higher interest to accept our junk bonds”
“Surviving the Economic Collapse” - best modern survival book. Written by a guy who has lived through years of coping with the collapse in Argentina.
I highly recommend this book. It is very practical for the average person. The advice in it is within reach of everyone.
The author also has a web site:
(and he’s a FReeper)
The Treasury doesn't get to create worthless money to buy anything.
Much better.
“Bottom line: Expect repayment default in the reasonably near future followed by inflationary (and probably hyperinflationary) default shortly thereafter. The U.S. economy is screwed for the next several decades.”
Great article and thanks for posting
I half agree with your point. Default and/or repudiation is coming. If you’ll note from my tagline, I prefer that we skip default and go straight to repudiation. Where I disagree is with the hyperinflation and the economy being “screwed” for several decades.
Repudiation and/or default will be rough and we’re talking a good decade of pain and forced austerity once borrowing is no longer an option. The key here is not to destroy the currency in the process. Take a look at other countries who have defaulted and/or repudiated their debt. It’s not armageddon and there is a lot of silver lining in that cloud.
I’ve said it before, and I’ll say it again: gold standard!!!
Gold is headed for $2,000 per oz. soon. A hundred years ago, gold was legally $20-2/3 ($20.666... or $20.67) per oz. A paper dollar is near to one-and-a-half cents in value, and heading for ONE CENT!
Economists love to say that we shouldn’t judge inflation on just one commodity, and that the supply of money shouldn’t be dependent on “grubbing about in the dirt.” It’s just not sophisticated and modern enough, you see.
Horsehockey! The usefulness of a gold standard isn’t any “magic” value in the metal, it’s in the fact that it is real. That is, it is verifiably present or absent in a government’s vaults, and cannot be conjured from thin air. Floating currencies are the magic trick, not the gold standard.
My solution would be to set gold at $20 per oz. and announce that all post-Nixon paper money is worth 1/100 of face value, and all outstanding debts are worth a corresponding 1/100th as well. Spare change and old gold-reserve notes would be worth face value, making a penny equal to a dollar bill (until new gold-reserve notes were printed). Sure, it would be a hefty actual devaluation from one-and-a-half cents to one cent in debt repayment, but that would be good for our overall debt picture. The gold standard will reassure our trading partners that devaluation wouldn’t happen again.
Of course, this inflexibility in government bookkeeping is why we were taken off the standard in the first place...
No, but the Fed sure can.
Default takes many forms: Outright repudiation (e.g. refusal to repay debt), renegotiated terms (e.g. lower interest rates, extended payback periods, lower payment levels, etc.), and inflation (i.e. payback with currency which has less purchasing power than the funds originally borrowed).
Default of external debt (i.e. money owed to foreigners) almost always leads to chronic hyperinflation in the range of 100 percent or so per year (think Argentina, 1989). Default of internal debt (i.e. money owed to citizens) almost always leads to acute hyperinflation in the range of 100 percent or so per day (think Germany, 1923). In other words, hyperinflation is virtually a given any time a company defaults on its obligations.
The defaulting country is unable to borrow again until investor confidence is regained. This typically takes serious fundamental reforms (i.e. vastly reduced spending - 40 to 60 percent in the case of the U.S. not counting debt service) and decades of observed fiscal discipline.
Greece has been able to survive so far because of the willingness of others to essentially guarantee their debt by bailing them out. Others have gotten by thanks to adopting draconian measures imposed on them by the IMF ... funded in large part by the U.S. ... who in turn basically guaranteed their debt. Without such guarantees, it typically takes three to seven decades for a country to return unfettered to the credit markets.
Unfortunately, no one has the capacity to ensure payment of U.S. obligations, nor does it look politically feasible for Congress to slash the most egregious budget busters: Medicare, Medicaid, Social Security and civil service pensions.
Considering the above, I must conclude that hyperinflation is inevitable and that we are screwed for at least one or two generations.
For much more on the topic see: This Time Is Different: Eight Centuries of Financial Folly by Reinhart and Rogoff and Monetary Regimes And Inflation: History, Economic And Political Relationships by Peter Bernholz. Both books were written by leading economic experts, draw heavily on history, and will scare any sane person to death.
Don’t tell me, tell the guy who doesn’t know the difference between the Fed and the Treasury.
The Treasury doesn’t get to create worthless money to buy anything.
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You’re right, I am guilty of using the same wording as the article without thinking.
“Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills.”
When there is a severe snowstorm in DC, the word goes out that only “essential” workers must report for duty. I say, fire all those who were told to stay home and repeat the process across the whole country. If you’re not “essential” then we really don’t need to keep paying you.
Aren't we "buying" some of our own debt?
GE's also involved in all the bullsh^t "green" energy stuff - heavily subsidized by the government. As we go broke, that's the stuff that will be dumped first. Any company "on the line" with debt will be hurting when interest rates go up - and they will...
Saved.I will have some little cards make up and disperse them everywhere I go.
Where did you hear that? GE had interest expenses of almost $23.8 billion in 2007, $26.2 billion in 2008 and $18.8 billion last year. Their short term debt is only $133 billion and they have cash, cash equivalents and short term investments of about $124 billion.
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