Quote:
Originally Posted by Villages Kahuna
I've commented that sooner or later the piper will have to be paid with regard to the runaway deficit spending done by our Congresses over the last 10-11 years and the humongous national debt that such fiscal irresponsibility has caused.
But maybe "sooner" will really be sooner. On top of the Chinese beginning to reduce their holdings of U.S. debt, the bond market has gotten very "frothy" in the last week or so. The rates on Treasuries have escalated by almost 4% in a single week. The bond market gurus and traders are now saying that interest rates are on their way up in a big way. In a speech yesterday, Alan Greenspan referred to the interest rates on Treasuries as the "canary in the coal mine"...the predictor of bad things to come.
How does this affect us, you ask? Well, the gross debt of the U.S. is expected to be $14,456.3 trillion by the end of this year. That's about 98% of the total gross domestic product of the U.S. this year. What's most alarming is that the average maturity of all that debt is only 4.2 years! That is, about half of that $14.5 trillion in debt will become due and payable within the next 4.2 years.
The way those simple facts affect all of us is as follows. If our deficit spending continues unabated, economists project that our national debt will be $18.35 trillion by the end of 2014. When that debt comes due and must be repaid or refinanced what happens if... - Interest rates continue to climb and the U.S. Treasury finds it necessary to replace bills and bonds with interest rates averaging between 2.5-3.5% with new debt instruments carrying rates of 4-5-6%?
- And what happens if China, Japan and Saudi Arabia, the largest holders of U.S. debt decline to buy all the new and increased debt that is needed?
In essence, I'm describing a situation where the U.S. is definitionally bankrupt. It can't pay it's debts when they become due.
What would happen then is that the Treasury would simply print more money--increase the money supply--and use the new money it prints to pay off old debts as well as finance spending that it can no longer finance by selling debt. That would drive the value of the U.S. dollar to unheard of low levels and inflation would skyrocket.
The price of the goods, services and products would increase to reflect the decline in the value of the dollar. The inflation could be pretty bad...$7-8 a gallon gasoline, cars that now cost $20,000 could easily cost $30-40,000, the price of groceries would skyrocket, the cost of services like insurance would escalate to reflect the increased costs of those risks that insurance companies underwrite. Yes, if you think that health insurance is high now, it could appear to be a bargian in only a few years.
If you thought there is public outcry over the healthcare reform bill now, wait until runaway inflation eats away at the purchasing power of every man and woman in the U.S.
Frankly, I thought that these events would occur, but would occur slowly and not really be a problem in my lifetime. I've begun to change my mind. I think these events could easily occur sooner...much sooner than I expected.
Remember that key fact...at least half of the public debt issued by our country becomes due and payable in 4.2 years. The questions are: at what interest rate will be able to refinance that debt as it rolls over? And if the national debt keeps growing as fast as it has, will there be enough money--enough buyers of our debt--to buy all that we will need to sell to finance our spending?
I'll end this note by saying that the situation I've described could actually be a good thing. Given that situation, our elected politicians would have no choice but to drastically cut spending and probably increase taxes. There would be no alternative. No one political party, ideological group or candidate would have to take responsibility for those inevitable actions. The pain resulting from slashing spending and increasing taxes would be less than that resulting from runaway inflation.
The end result might actually be a good thing for the country.... really bad for each and every one of us, but good for the country. |
There is nothing in your post VK that is surprising. I posted a few days ago that Social Security is going into deficit this year, and first of all, allow me to say that BOTH parties have raided this account for years for social programs and war. I say that so that folks dont say I am blaming Obama for this situation directly...that, of course is not true.
HOWEVER, this congressional leadership...these people who brought us "bail outs" and now a large political boondoogle with an health care bill that doesnt even address cost control (and in fact pawns off the paying of the bill until someone else is in office while they pat themselves on the back), just will not stop spending and recall in Jan of 2005 right after Bush asked for ideas on Social Security and offered his own of privatization because as he said later it was a problem that future generations will need to address...didnt make much news...Pelosi on the other hand did make news with this in Jan of 2005 "“
That tradition is embodied in the Democratic Party’s commitment to Social Security.
“Social Security is the most visionary example of what President Franklin Roosevelt called ‘bold, persistent experimentation.’ Its goal was to ensure that the prospect of retirement was not met with the specter of poverty.
“It has been an incredible success. It has enabled our seniors to enjoy independence. And it has enabled our country to obey the commandment: “honor thy father and thy mother.”
“Not only does Social Security improve the lives of the more than 33 million senior citizens who receive its benefits, it also provides a measure of independence for workers who have become disabled, and the children and spouses of those who have become disabled or passed away.
“Social Security does face problems down the road. We need to solve them. But we have the time to do it right.
“We can solve this long-term challenge without dismantling Social Security, and without allowing this Administration’s false declaration of a crisis to justify a privatization plan that is unnecessary, unaffordable, and unwise.
“To be sustainable, any long-term solution must be bipartisan. And as a first step, we must work off the same set of numbers.
"The President talks about a crisis, but according to the nonpartisan Congressional Budget Office, Social Security will be solvent for nearly 50 years.
This is the mindset we are faced with. We continue to give unions breaks...we continue to talk about more spending....and yes, I am talking about all Democrats....that does not mean I do not understand that Republicans have raided this account also, but I am speaking of who is in control RIGHT NOW.
Folks, they are going to have to raise the age of retirement again, while reducing medicaire benefits...what do these people think is going on out here in the real world.
Sorry....I am ranting...lost focus and just mumbling now but still going to post this and just hope that people see what is going on in this country right now. The perfect storm (This President and this congress) at the totally wrong time in history from my perspective and I see NO chance of let up.
This President, as he has done his entire career, will CREATE another crisis to involve our government spending and controlling and he will then have this congress act on it !
Sorry...shouldnt post it but going to anyway and then just back off. But be aware of Social Security !
Sorry VK...I did not address your post very well, but whats new
