This is a little reported story, but one I think should be front page everywhere.
WASHINGTON (AP) -- The government expects to borrow a record $188 billion in the January-March quarter, even more than it anticipated three months ago, the Treasury Department announced Monday.
The total will surpass the old mark of $146 billion set in the first quarter of 2004, a year in which the federal budget deficit hit an all-time high in dollar terms of $413 billion.
After declining last year to $319 billion, this year's deficit is expected to reach $400 billion, according to the Bush administration, which has said part of that increase will reflect higher spending to rebuild New Orleans and other hurricane-damaged areas of the Gulf Coast.
The Treasury Department's new estimate of the amount it will need to borrow in the current quarter surpasses the $171 billion estimate made in November.
Officials attributed the higher figure to a timing issue when Medicare payments are made to health maintenance organizations. Those payments were made in January instead of December as Treasury had expected and therefore will drive up borrowing needs for this quarter.
Treasury officials said they still expect to hit the current debt ceiling of $8.184 trillion in mid-February but will be able to use various bookkeeping maneuvers to keep from disrupting borrowing operations until mid-March.
Democrats are hoping to use the congressional debate over the need to raise the borrowing ceiling to highlight the failure of Bush administration budget policies. They contend Bush's support for sweeping tax cuts during his first term is the major reason the deficits have been soaring.
The administration contends the tax cuts helped to get the country out of the 2001 recession and must be made permanent so economic growth will not be slowed in the future.
The announcement Monday was part of the government's quarterly refunding operations. It will announce on Wednesday the amounts of money it will raise next week and the types of Treasury securities it will sell to raise that cash.
One of those securities will be a 30-year Treasury bond. The government announced last August that it was bringing back the 30-year bond with the first auction of the new bonds taking place February 9.
It follows close on the heels of this almost entirely unreported story:
In a shocking development, the Treasury Department website is openly stating that as of January 24, 2006 our national debt stood at $8,185.3 billion and on January 26th at $8,190.5 billion.http://www.publicdebt.treas.gov/opd/opdpenny.htm
Yet the US national debt ‘ceiling’, the maximum amount of debt the US government may hold at any one time, stands at $8,184 billion – a full $5.5 billion less. Although called upon by John Snow, Congress has not yet passed an expansion of the debt ceiling and so the US government is now operating in technical default.
You may recall that when last the debt ceiling was approached in the months surrounding the 2004 elections, the Treasury department furiously employed every accounting trick in the book (and then some) to avoid breaching the limit. They even went so far as to take the unprecedented step of borrowing $14 billion from the Federal Financing Bank to cover up the shortfall.
But they never breached the ceiling.
On January 24th they breached it brazenly and openly and with nary an accompanying explanation. Neither have any lawmakers have broached this indelicate subject.
I suppose we could write this off as merely an unsurprising development from a government that no longer bothers to even appear to be adhering to rules, laws and procedures, let alone actually doing so.
But the silence is all the more troubling because there is an unprecedented level of government borrowing on the books for 1Q06 with next 2 weeks (Feb 1st to Feb 9th) an especially busy period of time. An ambitious ~$70-$80b in Treasury paper will hit the market.
The federal government does not have the legal authority to borrow above the statutory debt limit, which raises the prospect of emergency congressional action to avoid a full-fledged default.
Congress will probably attach a rider to a “must-pass” defense appropriation bill and ironically title it “The Fiscal Responsibility Amendment of 2006”. And if they do, $50 says they do it very late on Friday night.
Since the debt ceiling has been raised 50 times over the past 40 years, hoping for some rational debate on the matter would be an extravagant indulgence. Time spent wishing pigs could fly would offer a far better potential return.
Another odd facet of this story is the deafening silence from the financial press (and I use that term loosely) regarding this matter. Leaving aside the issue of a technical default, one wonders why questions aren’t being asked about the rate of debt accumulation and whether it’s sustainable.
The last debt-ceiling adjustment was $800 billion and was passed in November 2004. Now, on January 24th 2006, it is entirely gone. $800 billion in only 16 months for an average of $50B a month.
Factoring out the plundering of excess social security contributions, the US government borrowed $52B in 3Q05, $96B in 4Q05 and expects to borrow $171B in 1Q06. A trend nearly as mind-boggling as the soon to be discontinued M3 series.
Why do I even bother to pen such distressing factoids?
Because in all my time studying economics I have determined only one thing; there’s no free lunch. Pay now or pay later but pay we will.
Or, more accurately, we hope that our kids will, and not stiff us for the bill. But if they did, who could blame them?
While the Conservatives of both parties have long held that debts are not really of much concern, it is imprtant to weigh this in in light of social developments in the US. The debt hurts the lowest classes worse, forcing higher interest rates, increased costs for all aspects of retail, resulting in higher costs at POS.
As some have pointed out the US may already be in a recession. Personally, I think it certainly feels like a recession.
While the feds report unemployment at roughly 6%, any one with the wit to look around knows this cannot be accurarate, it has to be closer to 20% (and this would be depression levels, btw. At its worst the depression of the 1930's had about a 25% unemployment rate). Couple this with the downward trend in wages, (wage slaves are never counted as *unemployed* although they are certainly in the same dire situation as those who cannot find work at all) and you can begin to see the cash crunch that is developing.
We are beginning to see the cost of 150 years of Merchantilism. With over 95% of all the cash available to US citizens held by less than 5% of the population, there simply isn't enough cash left to go around. No matter how much tax increase is placed upon the citizens, it will be to no avail, since even 100% tax rate wouldn't yield enough income to support the growing federal debt!
In economics there is a *law* that states when 5% of the population hold 95% of the resources, a total failue of the monatary system is inevitable. It's called the 95/5 law. Historically, it has happened a few times, and each time has led to the downfall of the economy involved.
It has even happened once with the direct involvement of Merchantilism. The fall of the British Empire was directly due to a situation that was very similar to this one we see now in the US.
It is interesting to note that many of these Merchatile Elitists literally moved to the US, and set up shop in the middle of the 19th century as Britannia disintegrated. They became partners and investors in the Railroad Corps, already run by homegrown merchantilists, and aided them in gaining for themselves rights and privleges they were never meant to have.
Now they have run the course in the US, and WE the PEOPLE will be left holding the bag. A rather empty bag at that.
We already see them running like hell, for China, India and other new *slave states* with ripe and growing economies. They are *selling* worthless dollars for almost anything they can get. China, Japan, and even Bill Gates are selling dollars (often selling them short, btw) and buying Euros, Iran is pledging to open their Oil Brouse with a Euro exchange. China has announced it will not buy any more treasury bonds, and will begin divesting the bonds it has. Japan will follow suit.
This money will neot come *back* to the US economy, as one might imagine. With a debt so vast, all this returned money will go to the upper 5% (more like 2% in actuality) to pay off massive interest payments, and it will still not be enough.