DEBT WALL 2013: The Death of Socialism

[dothedd]

THIS ISSUE DESERVES A THREAD:

The US Debt Clock: www.usdebtclock.org/


HERE IS AN INTERESTING LINK WITH A SIGNLE DEBT CLOCK and an interesting take on 2010.

www.babylontoday.com/national_debt_clock.htm

[dothedd]

P. S.

FORGET ABOUT THE MEMBERSHIP ADVERTISEMENTS, and focus on the content!

Have a good day!

[dothedd]

"Hitting the debt wall is a dire financial situation that can occur when a nation depends on foreign debt and/or investment to subsidize their budget and then commercial deficits stop being the recipient of foreign capital flows. The lack of foreign capital flows reduces the demand for the local currency. The increased supply of currency coupled with an increased demand then causes a significant devaluation of the currency. This hurts the industrial base of the country since it can no longer afford to buy those imported supplies needed for production. Further, any obligations in foreign currency are now significantly more expensive to service both for the government and businesses."

[frankq]

Bump

[dothedd]

[dothedd]

DEBT LIMIT - A GUIDE TO AMERICAN FEDERAL DEBT MADE EASY.

[Aman A.K.A. Ahamburger]

Nice DOT! That is it right there.. Time to get a clue politicians!

[dothedd]

U.S. Deficits and the National Debt

Author: Jonathan Masters, Associate Staff Writer
February 17, 2012

Introduction
Historical Trends in U.S. Debt
The Tax and Spending Conundrum
Demographics and Long-Term Deficits
Proposed Deficit Reduction Plans
Cautionary Tales from Europe


Introduction

Long-term budget projections indicate the United States faces insolvency over the next few decades under the current tax and entitlement regime. Unless appropriate legislative action is taken, many analysts say, the national debt (PDF) will become unsustainable, growing at a faster rate than GDP and commanding a growing percentage of government revenues to pay the interest. As the United States emerges from a deep recession, it must maintain a tricky policy balance, experts say. Alongside short-term measures aimed at sustaining the economic recovery, such as the payroll tax cut extension (AP), the government must achieve medium-term fiscal consolidation likely involving higher taxes and lower spending to lessen its massive debt. But gridlock between Democratic and Republican lawmakers, signaled anew since the release of the Obama administration's fiscal year 2013 budget, risks eroding the international investor goodwill underpinning low U.S. borrowing costs. Economists warn that postponing reforms for too long risks tarnishing the U.S. reputation in the eyes of global investors who have relied on U.S. Treasuries as an essentially riskless, "safe haven" asset.

CONTINUED: www.cfr.org/united-states/us-deficits-national-debt/p27400?cid=rss-analysisbriefbackgroundersexp-u.s._deficits_and_the_national-021712

[Aman A.K.A. Ahamburger]

I agree with the assertion above DOT. That the USA has to do something to get deficit financing under control. I was really worried about 2013 and I have been saying watch out for 2013 for quite some time now. However, over the past while it has become apparent that people have not lost their apatite for US debt yet. As well as EU debt. Just today Taiwan announced they are buying up Italian and Spanish debt because of the higher interest rates. When you look at Greece they may be sorry they did, however, that signals that the international community has more confidence now that the EU problem can be unwound because of the economies that are in trouble. Most of the rely on tourism, so if world economic growth can continue there can be forward momentum in the EU still.

China is way more wiling to sick to the plan of happiness as we can see with the coming elections there. That means that their trillions of dollars in reserves will go to work in their economy and that will funnel around the world. We see US companies making money in China and rising wages bringing work home. All this points to the GDP wheels in motion. I was really worried about 2013 dot, but things have gone a bit different than I expected in some of these dictatorships are the world. Saudi women are looking at driving soon!!

[dothedd]

U.S. NATIONAL DEBT CLOCK
The Outstanding Public Debt as of 19 Mar 2012 at 02:36:04 PM GMT is:

$15,579,668,161,113.77

The estimated population of the United States is 312,427,846
so each citizen's share of this debt is $49,866.43.

The National Debt has continued to increase an average of
$4.02 billion per day since September 28, 2007!
Concerned? Then tell Congress and the White House!

[dothedd]

Mar 19, 2012 10:35:40 GMT -5 @wxyz said:

Good thread, but the chance that politicians will take care of this issue, unfortunately hopeless.

WZYZ,

I concur.

dot

[dothedd]

www.usdebtclock.org/

[Aman A.K.A. Ahamburger]

I hear ya Dot.. Warburg is rolling right now as well as...

Consider this, had FDR listened and NOT bonded the NEW deal but spent the money through the banks this is what the results would have been back then..

U.S. turns a profit on bailout's mortgage-backed securities
www.latimes.com/business/la-fi-bailout-profit-20120320,0,2699633.story

PROFITS for the US from the NEW DEAL not a massive debt load. The good news is there is still time to move in the right direction. China needs us more than we need them.

[Aman A.K.A. Ahamburger]

This is also why things are still, ok. It's just a matter of simple logic. Sure Switzerland is much smaller than the USA. However, everything is relative. Just a few minor changes can make all the difference. Considering that this is a long term project, there is still plenty of time because GDP is no where NEAR maxed out in this world. Then we have space!

Switzerland against the world
www.theglobeandmail.com/report-on-business/commentary/neil-reynolds/switzerland-against-the-world/article2364613/

The Swiss, it’s said, are naturally frugal. If so, perhaps it explains why they can balance their budgets and why we can’t. European fiscal crises notwithstanding, Switzerland balanced its budget once again in 2012 – hiking spending by a mere 1.7 per cent, hiking revenue by a modest 2.4 per cent and hence limiting public expenditures, more or less precisely, to what the country proposes to collect in taxes.

Switzerland’s economic success goes further, though, than corporate tax rates. Schwyz, for instance, makes it clear in its promotional literature that you will be welcomed – provided you meet your responsibilities as either citizen or guest. You will be expected to respect the “fundamental values” of the canton. You will be expected to buy your own health insurance coverage from a private Swiss insurance company. And you will be expected to find yourself a family doctor. “This doctor will be your first point of call for all health problems,” the canton advises, “even in emergencies, at night and on weekends.” In other words, don’t even think of walking into a hospital for a minor complaint. In Schwyz, private health-care insurance is mandatory for everyone. If you’re poor, the canton will adjust the premium to help you out.

[dothedd]

Mar 22, 2012 23:14:35 GMT -5 Aman A.K.A. Ahamburger said:

I hear ya Dot.. Warburg is rolling right now as well as...

Consider this, had FDR listened and NOT bonded the NEW deal but spent the money through the banks this is what the results would have been back then..

U.S. turns a profit on bailout's mortgage-backed securities
www.latimes.com/business/la-fi-bailout-profit-20120320,0,2699633.story

PROFITS for the US from the NEW DEAL not a massive debt load. The good news is there is still time to move in the right direction. China needs us more than we need them.

Aham, it sounds good, but like another reader I am wondering if these TOOT YOUR OWN HORN articles are in fact political fodder!

The list of articles supporting the "good deeds" of the Obama administration is long, and getting longer the closer we get to time to VOTE! Another reason to bang one's head against the well..

dot

[The Virginian]

Since we all seem to agree that our government will never curtail the debt in any meaningful manner the only way out is to generate revenue to pay off debt. I don't see that with the current administration.

[Aman A.K.A. Ahamburger]

What my point is Dot is more to personal responsibility. It's like MR V is saying, it's a revue problem. It's simple math problem really. It just needs to be adjusted to make the right balance. I don't get WHY this can't just happen. It's the divided political spectrum and people need to jut say we don't really need you assholes to argue over how to spend our money, just balance the damn budget and get on with it already.

We know the morgadges have been sold b because we have been following it on SFW.. The banks are using their deposits to take these toxic assets back off the books the UST.

[flow5]

Before the downswing in Aug 2008, the rates on (using rates as of Feb 2012):

3-month bills 1.7%) then (.16%) now [will be 10x old rate],
4-week bills 1.5% then (.15%) now [10x],
6-month 1.9% then,. (.23%) now [8.2x]

So these short-term yields are going to explode, multiplying by perhaps ??x if yields returned to "historical averages".

1 year constant maturity now (.16%) 2.3% then [14x],
2 year constant maturity now (.28), 2.5% then [9x].
3 year constant maturity now (.38%) 2.9% then [7x],
5 year constant maturity (.83%) now, 3.3% then [4x]
10 year constant maturity (1.97%) now, 4.01% then [2x]
20 year constant maturity (2.75%) now, 4.38% then [1.6x]
30 year constant maturity (3.11%) now, 4.57% then [1.5x]

The interest expense on 2011's Federal Debt was $454b. In the first 5 months of 2012's Fiscal Year the interest expense has been $187b.

1.usa.gov/qvYMRZ

With the constant roll-over of debt, it becomes obvious that the burden of future higher interest rates will be compounded. The burden will become a function of the major portion of the debt, not just the current deficits. The burden, in fact, becomes exponential. In other words, if the trend is not stopped, the debt inevitably has to be repudiated.

The interest charges on $15.5T of Federal Deficit is below the DOD & Health & Human Services expenses. It is also not far behind the Social Security off-budget outlays.

[Driftr]

Mar 26, 2012 10:10:38 GMT -5 flow5 said:

With the constant roll-over of debt, it becomes obvious that the burden of future higher interest rates will be compounded. The burden will become a function of the major portion of the debt, not just the current deficits. The burden, in fact, becomes exponential. In other words, if the trend is not stopped, the debt inevitably has to be repudiated.

It will be interesting to see in the coming years how they try to get themselves out of the corner they've painted themselves into. I am expecting devaluation via inflation rather than outright default.

[flow5]

Driftr:


Long-term interest rates are determined not only by the various supply and demand factors that affect short-term rates but also by a unique factor; namely, inflation expectations. The expectation that price levels will chronically increase injects an “inflation premium” into long-term rates. Under these assumptions, the present supply of loan funds would decrease (in both a quantitative and schedule sense). That is to say, lenders as a group, reduce the volume of loan funds offered in the markets, and refuse to loan any particular volume of funds (except at higher rates that will compensate for the expected rates of inflation).

I.e., higher inflation expectations generate higher inflation premiums. The higher the expected rate of inflation, the higher long-term rates will climb (this yield-response prevents federal deficits from being “inflated away”.

Conversely, borrowers expecting to be able to pay off loans with depreciated dollars will increase their demand for loan-funds. Higher interest rates will choke off the economy long before inflationary forces reduces the burden of debt. I.e., of the two effects, the supply side is the more important, since it literally establishes the minimum for long-term rates.

[flow5]

"Schiff called Bernanke “public enemy number one” "

"There is little doubt that the Federal Reserve, with Chairman Ben Bernanke at the helm, is holding markets by the hand"

"expects a massive crash over the next two to three years as a bond market bubble"

onforb.es/GWpp7b

"And the corporations are listening. Fears of either rising rates or widening spreads are pushing firms into an already heavy HY calendar"

[Driftr]

Mar 27, 2012 18:44:22 GMT -5 flow5 said:

Driftr:


Long-term interest rates are determined not only by the various supply and demand factors that affect short-term rates but also by a unique factor; namely, inflation expectations. The expectation that price levels will chronically increase injects an “inflation premium” into long-term rates. Under these assumptions, the present supply of loan funds would decrease (in both a quantitative and schedule sense). That is to say, lenders as a group, reduce the volume of loan funds offered in the markets, and refuse to loan any particular volume of funds (except at higher rates that will compensate for the expected rates of inflation).

I.e., higher inflation expectations generate higher inflation premiums. The higher the expected rate of inflation, the higher long-term rates will climb (this yield-response prevents federal deficits from being “inflated away”.

Conversely, borrowers expecting to be able to pay off loans with depreciated dollars will increase their demand for loan-funds. Higher interest rates will choke off the economy long before inflationary forces reduces the burden of debt. I.e., of the two effects, the supply side is the more important, since it literally establishes the minimum for long-term rates.

I agree with the premise, but I don't think it accounts for QE. Otherwise wouldn't we have already seen the vaunted bond vigilantes forcing the yields on Treasuries up?

[flow5]

The commercial banking system's vast holdings of IOeRs (stemming from the FRBNY's open market operations), has increased the supply of loan-funds (& decreased the demand for loan-funds), by the amount of Treasury securities, agency debt, & MBS securities held outright (held within the System Open Market Account's portfolio -- 2.6T as of Jan 2012). This portfolio is allocated amongst the 12 District Reserve Banks. These securities are recorded as assets on the FED's balance sheet (H.4.1 release).

Taking this huge supply of debt off the market (most of 2009-2010 fiscal year's deficit financing), has reduced the level of all interest rates, & has distorted many of the past's economic relationships.

There is a finite limit to scope of these operations. And when Operation Twist ends, the back-end of the yield curve will rebound (as the demand for longer-dated debt subsides). or sooner if traders anticipate that rates will rise at some time in the immediate future). That spells higher interest rates across the entire spectrum of securities.

[flow5]

Unless Treasury acts, four numbers add up to a US debt disaster
April 1 2012 at 12:18pm

Bloomberg

The Federal Reserve purchased 61 percent of the net Treasury issuance last year, according to the banks quarterly flow-of-funds report. Photo: Bloomberg.

Consider the following numbers: 2.2, 62.8, 454, 5.9. Drawing a blank? Not to worry. They don’t mean much on their own. Now consider them in context:

1) 2.2 percent is the average interest rate on the US Treasury’s marketable and non-marketable debt (February data).

2) 62.8 months is the average maturity of the Treasury’s marketable debt (fourth quarter 2011).

3) $454 billion (R3.5 trillion) is the interest expense on publicly held debt in fiscal 2011, which ended September 30.

4) $5.9 trillion is the amount of debt coming due in the next five years.

For the moment, numbers 1 and 2 are helping number 3 and creating a big problem for number 4. Unless the Treasury does something about number 2, numbers 1 and 3 will become liabilities while number 4 has the potential to provoke a crisis.

In plain English, the Treasury’s reliance on short-term financing serves a dual purpose, neither of which is beneficial in the long run. First, it helps conceal the depth of the nation’s structural imbalances: the difference between what it spends and what it collects in taxes. Second, it puts the US in the precarious position of having to roll over 71 percent of its privately held marketable debt in the next five years – probably at higher interest rates.


First among equals

And that’s a problem. The US is more dependent on short-term funding than many of Europe’s highly indebted countries, including Greece, Spain and Portugal, according to Lawrence Goodman, the president of the Center for Financial Stability (CFS), a non-partisan New York think tank focusing on financial markets.

The US may have had a lot more debt in relation to the size of its economy following World War II, but the structure was much more favourable, with 41 percent maturing in less than five years, 31 percent in five-to-10 years and 21 percent in 10 years or more, according to CFS data. Today, only 10 percent of the public debt matures outside of a decade.

Based on the current structure, a 1 percentage-point increase in the average interest rate will add $88bn to the Treasury’s interest payments this year alone, Goodman says.

If market interest rates were to return to more normal levels, well, you do the math.

Some economists have cited the Treasury’s ability to borrow all it wants at 2 percent as an argument for more fiscal stimulus. Why not, as long as it’s cheap?

Goodman says the size of the deficit – 8.2 percent of gross domestic product (GDP) – or the debt – 67.7 percent of GDP – is only part of the problem. The bigger threat is rollover risk: “the same thing that got countries from Portugal to Argentina to Greece into trouble”, he says. “It’s the repayment of principal that often provides the catalyst for a market event or a crisis.”

The US is unlikely to go from all-you-want-at-2-percent to basket-case overnight. That said, policymakers would be wise to view recent market volatility as a taste of things to come.

Talking to Goodman, I was reminded of the Treasury’s standard sales pitch before quarterly refunding operations during periods of rising yields. Some undersecretary for domestic finance would be dispatched to tell us that Treasury expected to have no trouble selling its debt.

I had an equally standard response: At what price?

That seems particularly relevant today. The Federal Reserve purchased 61 percent of the net Treasury issuance last year, according to the bank’s quarterly flow-of-funds report. That’s masking the decline in demand from everyone else, including banks, mutual funds, corporations and individuals, Goodman says.

Of course, Fed chairman Ben Bernanke might look at the same numbers and see them as a sign of success. His stated goal in buying bonds is to lower Treasury yields and push investors into riskier assets.


Free to borrow

Then there’s the distortion in the relative value of stocks versus bonds to worry about. Using the 10-year cyclically adjusted price-earnings ratio and the inverse of the 10-year Treasury yield, Goodman says the relationship hasn’t been this out of whack since 1962.

The Treasury isn’t unaware of the rollover risk. At the same time, it’s trying to accommodate the increased demand for “high-quality liquid assets”, such as Treasury bills, as required under new international capital-and-liquidity standards, says Lou Crandall, the chief economist at Wrightson ICAP in Jersey City, New Jersey.

In fact, when Treasury bills carry a negative yield – when investors are paying the government to hold their money for three, six or 12 months – borrowing “more is better”, Crandall says.

Still, the dangers are very real and were highlighted by Bernanke himself last week in the second of four lectures to students at George Washington University.

Explaining why the decline in house prices had a greater impact than the drop in equity prices less than a decade earlier, Bernanke talked about “vulnerabilities” in the financial system. Too much debt was one; a reliance on short-term funding was another.

I doubt he had the Treasury in mind when he was explaining how the subprime debacle morphed into a global financial crisis, but the US government would be wise to heed his advice.

Currently, its demand on the credit markets for annual interest and principal payments is equivalent to 25 percent of GDP, Goodman says, 10 percentage points higher than the norm.

That’s real money. And with the federal budget deficit projected to top $1 trillion for the fourth year running, the funding pressure is bound to increase.

So the next time you hear someone say the Treasury can borrow all it wants at 2 percent, tell them, that’s true – until it can’t.

[dothedd]

Sept 18, 2011 12:52:20 GMT -5 dothedd said:

THIS ISSUE DESERVES A THREAD:

debtwall.org/

ANYONE NOTICE WHEN THE "DEBT WALL LINK" went dark/down?

Marc Nuttle’s debt wall and why Barack Obama’s presidency may crash into it .. "In short, those rioting in Greece look a lot like the voters who elected President Obama just three short years ago."

CONTINUED:
Read more: dailycaller.com/2011/06/20/marc-nuttles-debt-wall-and-why-barack-obamas-presidency-may-crash-into-it/#ixzz1qu4PIfaU

Published: 2:05 PM 06/20/2011 - Last year's news, but insightful.

Read more: dailycaller.com/2011/06/20/marc-nuttles-debt-wall-and-why-barack-obamas-presidency-may-crash-into-it/#ixzz1qu3R27EA

[TD2K]

The link in post #1 is working for me this morning.

[dothedd]

Morning, TDK...

I updated Post # 1.

dot

[Aman A.K.A. Ahamburger]

The US may have had a lot more debt in relation to the size of its economy following World War II, but the structure was much more favourable, with 41 percent maturing in less than five years, 31 percent in five-to-10 years and 21 percent in 10 years or more, according to CFS data. Today, only 10 percent of the public debt matures outside of a decade.

Isn't this a matter of the times though. How many people were interested in 30 yr bonds in 1940?

Plus, with the article you posted flow it keep pointing out that the FED is buying a lot of debt.. All that will end up back in the UST. Seems a lot of analysts are overlooking that.

[flow5]

Federal deficit so far: $777 billion
@cnnmoney April 6, 2012: 1:03 PM ET

NEW YORK (CNNMoney) -- The federal government racked up an almost $780 billion deficit in the first six months of the fiscal year, according to new data from the Congressional Budget Office.

While that's quite a large number, it's actually $53 billion less than the same period last year, when the deficit totaled $829 billion.

PrintComment
The deficit is the annual gap between what the government spends and what it takes in. Accumulated deficits make up the national debt, which is currently north of $15 trillion.

The lower deficit for the first six months of the fiscal year is a product of slightly less government spending and an increase in revenues, or money collected by the government.

The CBO attributed about two-thirds of the $46 billion -- or 4.5% -- increase in revenue to corporations paying more in taxes. The government also collected more income tax from individuals. That's good news, as increased income tax collection indicates an improving economy and higher incomes for workers.

Total government spending dropped by $7 billion -- a very small number when compared to the total budget. But certain programs fared better than others.

Spending on Medicaid dropped $24 billion, and the government spent $15 billion less on unemployment benefits due to improvement in the job market in recent months. Defense spending declined by $9 billion.

Spending on Fannie Mae and Freddie Mac increased by $12 billion. Social Security benefit payments rose by $18 billion and spending on Medicare jumped $6 billion.

Last year, the federal government closed out its fiscal year in October with an estimated deficit of $1.3 trillion. That was the third straight year that the deficit exceeded $1 trillion.

The deficit will do so again this year -- marking the fourth straight year of $1 trillion-plus deficits.

This year, exactly how much money the government is spending relative to revenues is extremely important.

Washington's $5 trillion interest bill
The deal cut this summer to end the debt ceiling standoff provided for a $2.1 trillion increase in the country's legal borrowing limit, which now stands at $16.394 trillion.

At the time, it was estimated that such an increase could carry the Treasury Department safely beyond the contentious presidential election season and into early 2013.

But now that Congress has extended the payroll tax cut, emergency unemployment benefits and the so-called Medicare doc fix -- only some of which was paid for -- there is a greater chance that U.S. borrowing could reach the debt ceiling sooner.

It's possible that the limit could be reached smack dab in the middle of the fiscal firefight that Congress is expected to have over the expiring Bush tax cuts. That's to say nothing of Election Day, which falls on Nov. 6 this year.

Should the limit approach, the Treasury Department could still avert a U.S. default by employing "extraordinary measures" -- such as suspending investments in federal retirement funds.

So even if Treasury is at risk of hitting the ceiling at the end of November, it's possible that its moves could take the risk of default off the table until early 2013

[Aman A.K.A. Ahamburger]

Apr 8, 2012 19:03:50 GMT -5 flow5 said:

Federal deficit so far: $777 billion
@cnnmoney April 6, 2012: 1:03 PM ET

NEW YORK (CNNMoney) -- The federal government racked up an almost $780 billion deficit in the first six months of the fiscal year, according to new data from the Congressional Budget Office.

While that's quite a large number, it's actually $53 billion less than the same period last year, when the deficit totaled $829 billion.

PrintComment
The deficit is the annual gap between what the government spends and what it takes in. Accumulated deficits make up the national debt, which is currently north of $15 trillion.

The lower deficit for the first six months of the fiscal year is a product of slightly less government spending and an increase in revenues, or money collected by the government.

The CBO attributed about two-thirds of the $46 billion -- or 4.5% -- increase in revenue to corporations paying more in taxes. The government also collected more income tax from individuals. That's good news, as increased income tax collection indicates an improving economy and higher incomes for workers.

Total government spending dropped by $7 billion -- a very small number when compared to the total budget. But certain programs fared better than others.

Spending on Medicaid dropped $24 billion, and the government spent $15 billion less on unemployment benefits due to improvement in the job market in recent months. Defense spending declined by $9 billion.

Spending on Fannie Mae and Freddie Mac increased by $12 billion. Social Security benefit payments rose by $18 billion and spending on Medicare jumped $6 billion.

Last year, the federal government closed out its fiscal year in October with an estimated deficit of $1.3 trillion. That was the third straight year that the deficit exceeded $1 trillion.

The deficit will do so again this year -- marking the fourth straight year of $1 trillion-plus deficits.

This year, exactly how much money the government is spending relative to revenues is extremely important.

Washington's $5 trillion interest bill
The deal cut this summer to end the debt ceiling standoff provided for a $2.1 trillion increase in the country's legal borrowing limit, which now stands at $16.394 trillion.

At the time, it was estimated that such an increase could carry the Treasury Department safely beyond the contentious presidential election season and into early 2013.

But now that Congress has extended the payroll tax cut, emergency unemployment benefits and the so-called Medicare doc fix -- only some of which was paid for -- there is a greater chance that U.S. borrowing could reach the debt ceiling sooner.

It's possible that the limit could be reached smack dab in the middle of the fiscal firefight that Congress is expected to have over the expiring Bush tax cuts. That's to say nothing of Election Day, which falls on Nov. 6 this year.

Should the limit approach, the Treasury Department could still avert a U.S. default by employing "extraordinary measures" -- such as suspending investments in federal retirement funds.

So even if Treasury is at risk of hitting the ceiling at the end of November, it's possible that its moves could take the risk of default off the table until early 2013

Sure looks like entitlements are the issues, just like in Canada. At least the revenue is going in the right directing. As the Renaissance picks up steam over the next while those will only get better.. It will make it a lot easier on socialism as it dies...