THROW (BORROWED) MONEY - IT WORKS FOR US!
On September 21, as the Fed was announcing their plan to shift the Treasury paper on their balance sheets to a longer maturity, two events took place. The first one was a $US 500 Billion increase in the Treasury’s debt “limit”. The first $US 400 Billion increase was an automatic result of President Obama signing the debt and deficit deal on August 2. That same deal made the second tranche - of $US 500 Billion - automatic unless BOTH houses of Congress rejected it. The Senate did not reject it, so the deal was done. As of September 21, 2011, the Treasury’s new “limit” is $US 15.194 TRILLION.
The other event was a piece in CNN.com written by Mr Laurence J. Kolitkoff which contained this startling quote: “The government’s total indebtedness - its fiscal gap - now stands at $US 211 TRILLION by my arithmetic.” Mr Kolitkoff defines the “fiscal gap” as the difference (measured in present value) between ALL the future spending obligations of the US government and ALL projected future taxes. He takes the data used to make this calculation straight from the Congressional Budget Office (CBO).
Meanwhile, the Office of Management and Budget (OMB) has come out with a “forecasted” federal budget deficit for fiscal 2011 (which ended on Friday, September 30) of $US 1.30 TRILLION. As of September 22, the US Treasury’s “debt to the penny” had increased by $US 1.165 TRILLION in fiscal 2011. Given the fact that the official increase in annual debt is usually much more than the official annual deficit, this is a large anomaly. It is also stark evidence that the so-called “social security surplus” is no more. That “surplus” was what produced the phantom budget surpluses at the end of the 1990s and kept annual deficits substantially below annual debt increases - until now.
Enemies Of “Growth” - Foreign And Domestic:
As the year of 2011 winds down and the US election year of 2012 looms ever larger on the horizon, President Obama is honing his “message” to the American people. It is an all but knee jerk reaction of any politician anywhere to look for scapegoats when the nation he or she “leads” is facing economic or\financial headwinds. Mr Obama is no exception. His recently announced “jobs plan” has little chance of passing the Congress. Much worse, in terms of his future job prospects, almost every poll taken shows that a majority of Americans do NOT think that his plan will do anything to alleviate unemployment.
In fact, large numbers of Americans are coming to the conclusion that nothing that the politicians or the government have in mind will do anything to extricate them from the financial quicksand into which they are inexorably sinking. Even the pollsters, who have long experience of getting any “response” they want by carefully tailoring both the questions and the participants to their requirements, are getting worried. There is a growing surge among Americans to get rid of the incumbents wholesale next year, without regard to either party affiliation or professed platform.
A scapegoat is urgently necessary and Mr Obama is sniping at two of them every chance he gets. The first is the “Europeans”, who are “scaring the world” by not throwing enough newly created money at their sovereign and banking debt problems. Mr Obama is doing his utmost to convince Americans that any and all market or financial upheavals taking place anywhere in the world - including the US – have nothing to do with the “policies” of the US government. They are all caused by the Europeans.
The second scapegoat is what Mr Obama calls the Republican party’s “version of government”. This, he says, would cripple America. Americans have just been treated to the spectacle of the two parties in Congress almost shutting down the US government over a disagreement concerning $US 1.6 Billion in budget cuts. If this is a farce, Mr Obama’s contention that any concerted move to “shrink” the US government would “cripple America” is a bigger one. This time next year, Mr Obama will have presided over four years of annual $US 1 trillion plus budget deficits. No other president has come close . . .
While the focus of “sovereign risk” remains firmly fixed on Europe, the US government raised the debt “limit” of their Treasury twice over the third quarter of the year. The first $US 400 Billion increase came on August 2. The second “tranche” of $US 500 Billion - bringing the total to $US 900 Billion - came on September 21. Both of these were done in compliance with the debt “deal” hammered out in July. The other component of that debt deal is the “Super Congress”. By late November, this “bipartisan” panel must come up with plans to cut between $US 1.2 and 1.5 TRILLION off government spending future estimates over the next decade. There are grave and growing doubts inside and outside the US government that they will be able to agree on even the smaller number.
Fresh from their shock over the market’s reaction to their announcement of “operation twist” on
September 21 and knowing that the US government is on the horns of an insoluble dilemma, the Fed is busy preparing the way for yet more “shock and awe” over the rest of this year. On September 28, Fed Chairman Ben Bernanke gave a speech in Cleveland, Ohio. In his speech, Mr Bernanke stated that the Fed just might have to “ease monetary policy further” if inflation - OR INFLATIONARY EXPECTATIONS - fall significantly. The Fed has already pledged to keep their controlling rate at its present 0.00-0.25 percent level until mid 2013. To the markets, any talk of easing monetary policy means one thing - another round of Treasury monetisation or “quantitative easing”. In his speech, Mr Bernanke raised his favourite bogeyman one more time: “If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation.”
This has led to immediate “speculation” amongst the “Fed experts”. According to Treasury bond
investors, Mr Bernanke is now promising to prevent “deflation” even if it means direct Fed buying of not only Treasuries but mortgage securities, municipal debt and even stocks. Mr Bernanke has long sinceshown that he will go to ANY lengths to prevent “deflation”. So will the “Fed experts”.
.Ó 2009 – The Privateer
(reproduced with permission)
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