We’ve Got DEBT

Below is a telling excerpt from a newsletter issued by Streettalk Advisors (membership needed):

We’ve Got Debt

􀂾 $29 Billion in 91 Day Bills, October 26

􀂾 $30 Billion in 182 Day Bills, October 26

􀂾 $7 Billion in 4.5 Year TIPS, October 26

􀂾 $44 Billion in 2 Year Notes, October 27

􀂾 $41 Billion in 5 Year Notes, October 28

􀂾 $31 Billion in 7 Year Notes, October 29

Okay, so no real problem with this EXCEPT for the small fact that we have to pay for all of this eventually…right?

Well, it gets even a little more interesting once you dig a little deeper. Here is the potential problem – at the current time the Federal Government, believe it or not, actually DOES have a limit to how much debt that they can issue. Currently it stands at $12.1 Trillion – yes that is a “T” for trillion.

Currently we are pushing about $11.85 Trillion in outstanding liabilities which only leaves a measly $150 Billion to try and continue to keep the U.S. economic ship afloat. So, as the inevitable breach of the $12.1 trillion federal debt ceiling looms – Senate Democrats have started their work on how best to position themselves to pass the resolution without attracting much if any public attention. (Editor Note: Does it really matter if the public knows…you are going to do what you want to anyway?)

It will be very interesting to see just how, and if, this can be accomplished. Politico reports that Democrats are now planning on considering the debt increase provision to a “must-pass” bill such as the Department of Defense spending bill. Politico reports: “Adding it to the defense bill would allow Democrats to argue that they voted for the measure to help troops in harm’s way — and downplay that their vote also expanded the limit for how much money the country can borrow.”

However, fear not. My bet is that the Senate will use fear tactics just as Obama did to pass the stimulus package under the guise that “If we don’t act swiftly the U.S. economy will fall into a deep recession and will not recover.” By the way, that comment was complete B.S. as you can not permanently repeal the economic cycle.

Not to be disappointed this from Politico: “Unlike those of the House, the Senate’s rules do not allow it to automatically increase the debt with its adoption of the annual budget resolution. That puts senators in a tough position politically. If the Senate balks at the increase, Treasury Secretary Timothy Geithner has warned that the slow economic recovery could collapse, as investors around the world would sharply lose confidence in America’s abilities to meet its credit obligations.”

There it is – the ominous threat to allow them to run up out debt even more, but it is necessary, in order to save you from a terrible fate.

OOPS! Too late.

However, there might be hope. Republicans expect all 40 members to vote against a debt limit increase but that isn’t enough to keep the limit from rising. The hope comes in that the unity within the Democrats is questionable; “Regardless of the political treachery, I’m more worried about the economic treachery and the monetary aspects of it with devaluing the dollar,” said Sen. Ben Nelson (D-Neb.).

Senate Budget Committee Chairman Kent Conrad (D-N.D.) and the committee’s ranking member, Sen. Judd Gregg (R-N.H.), whose panel is in charge of the debt limit increase, both told POLITICO that appropriators may add the language to must-pass spending legislation. Conrad said he wants any debt increase to be coupled with language that would create a “comprehensive” process to force Congress to begin making tough choices to cut the debt — something akin to legislation he and Gregg proposed that would establish a commission to study ways to cut the deficit, whose recommendations would be fast-tracked through Congress.

Sen. Evan Bayh of Indiana, a centrist Democrat, said he wouldn’t support an increase in the debt limit “unless there’s some mechanism to start getting the deficit under control.”

The pounding of the U.S. dollar lately may be a real warning sign of things to come. There have been more and more overt threats by the U.S. trading partners to begin to shy away from the dollar as a reserve currency and already the purchases of U.S. debt by foreign governments has slowed dramatically.

However, if history is any precedent it will be difficult to convince a public, increasingly skeptical of the Administration’s economic policies, that this move will be in the best interest of Americans. Additionally, if the Senate continues to underestimate America’s sensitivity to this issue, and indeed tries to sneak the debt provision through, it will only turn even more people against Obama’s debt exploding strategy. With Obama’s recent approval rating having the biggest drop in the last 50 years he may become a lot more sensitive to what mainstream America thinks.

Or, maybe not.

At the end of the day, the question boils down to how massive debt increases now can be spun as necessary to contain debt increases, and in fact to reduce debt, in the future? Huh! Yes, you read that right. According to our government we need to issue debt in order to reduce debt later.


Posted on October 25, 2009, in Commentary, Deficit. Bookmark the permalink. Leave a comment.

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