The U.S. Government Will Borrow Close To 4 Trillion Dollars This Year
The article below is the outstanding plain English work of Michael Snyder. With the facts provided, it is very difficult to see any situation where our economy improves under this White House, or for that matter, this Congress. There is zero political will to make real lasting and desperately needed cuts to the disaster that is our bloated government...from either side of the aisle. Consider that the U.S. "only" brings in roughly $2Trillion in taxes annually. And that is a shrinking number as less and less people are employed.
Let me break this down a little further. If your household expenses each month total say $4,000 but your brought in only $2,000 each month, how do you think that would work out for you? Let's say you went to the bank and borrowed the 2,000 dollars you needed each month to cover your bills. At the end of year one, you are now $24,000 in debt while you only earn $24,000 per year.
The money you are borrowing isn't free, you have interest to pay on that debt and now you move into year number 2. Year number two you borrow 24,000 again, so your debt to income ration is now more than 2 to 1 when you factor interest. By the end of year 10, your income remains $24,000 but now you owe $240,000 plus interest from the previous years. If we just assume simple interest of 1.5% annually, after 10 years you would have accumulated another $385,000 in debt making your entire debt swell to $625,000!! But in reality, your bank didn't loan you any money after year one because you never paid it back. You found other banks. But in reality, "other banks" knowing of your credit history, would not lend you money for very long.
That would be insane.
Unless they had a purpose and you had a purpose for all of this accumulated debt.
Like collapsing the economy and bringing in a brand new world economy.
When you add maturing debt to the new debt that the federal government is accumulating, the total is quite eye catching.
You see, the truth is that the U.S. government must not only borrow enough money to fund government spending for this year, it must also "roll over" existing debt that has reached maturity. Of course the government never actually pays any of that debt off. Instead, it essentially takes out new debts to cover the old ones. So the U.S. government is actually borrowing far more money each year than most Americans realize. For fiscal year 2013, the U.S. budget deficit will be about $845 billion, but on top of that the government will also have to borrow about 3 trillion dollars to pay off old debt that is maturing. Overall, the U.S. government will borrow close to 4 trillion dollars this year, and that number will likely be even higher next year. That is not going to cause a crisis as long as interest rates stay super low, but if interest rates begin to rise substantially, the game will change dramatically.
When the government borrows money, it has to pay it back someday. Back in the old days, the federal government used to issue lots of debt that would not mature for a very long time. But in recent years things have been very different...
In order to fund the government, the Treasury Department periodically auctions Treasury securities with various maturities ranging from 30-day Treasury bills to 30-year Treasury bonds, with 2-3-5-7-year and 10-year Treasury notes in between. It used to be that the bulk of Treasury borrowing was done in the longer-term instruments with maturities of at least 10 years.At this point, the average maturity of outstanding government debt is only 65 months, and only about 10 percent of all Treasury debt matures outside of a decade.
In more recent years, however, this trend has shifted more toward shorter-term Treasury securities. There are pros and cons to both strategies. Generally speaking, the shorter maturities are considered more risky since short-term interest rates can vary frequently. Shorter-term maturities obviously have to be rolled over much more often. That raises the risk that there might not be enough buyers when the government needs them.
So what does that mean?
It means that the federal government must constantly roll over massive amounts of debt. Once again, this is not too much of a problem as long as interest rates stay super low, but as John Cochrane pointed out, if rates start rising back to "normal" levels things could get quite hairy very quickly...
Here’s the nightmare scenario: Suppose that four years from now, interest rates rise 5 percent, i.e. back to normal, and the US has $20 trillion outstanding. Interest costs alone will rise $1 trillion (5% of $20 trillion) – doubling already unsustainable deficits! This is what happened to Italy, Spain, and Portugal. Don’t think it can’t happen to us. It’s even more likely, because fear of inflation – which did not hit them, since they are on the Euro – can hit us.Sadly, those running things appears to be quite clueless. For example, retiring U.S. Representative Michele Bachmann recently asked Federal Reserve Chairman Ben Bernanke why the national debt has remained frozen in place for 56 straight days even though we have been borrowing lots of money. Bernanke seemed to have no idea how to answer that question...
As Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee Wednesday, Bachmann asked how there could be no increase reported in the total debt when the government is racking up about $4 billion a day in new debt.For the moment, the federal government is able to recklessly borrow and spend money and investors are rewarding this behavior with super low interest rates.
“After nearly 10 years as the head of the Federal Reserve, Chairman Bernanke could not answer my question today in Financial Services Committee,” Bachmann told WND.
She wondered if there’s a political motive.
“I asked whether the Treasury Department was cooking the federal government’s books as it was reported that the Feds debt balance sheet remained at $16,699,396,000,000 for 56 days straight, presumably so the Treasury Department wouldn’t officially register that once again the Congress had exceeded its legal borrowing limits.”
Unfortunately, this state of affairs is completely and totally unsustainable. At some point global financial markets will begin to behave rationally, and when that happens it is going to mean a tremendous amount of pain for the United States.
Over the past decade, the U.S. government has added more than 11 trillion dollars to the national debt at a time when the U.S. economy has been steadily declining. Anyone that thinks that we can continue to pile up more debt like this indefinitely does not know what they are talking about.
The following are some more statistics about the U.S. national debt for you to consider...
-Back in 1980, the U.S. national debt was less than one trillion dollars. Today, it is rapidly approaching 17 trillion dollars.
-During Obama's first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.
-The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.
-If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.
-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.
-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.
-Some suggest that "taxing the rich" is the answer. Well, if Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.
-If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.
-The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.
-At this point, the United States government is responsible for more than a third of all the government debt in the entire world.
-The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.
-The U.S. national debt is now more than 37 times larger than it was when Richard Nixon took us off the gold standard.
-The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.
-Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay. Kotlikoff speaks of a "fiscal gap" which he defines as "the present value difference between projected future spending and revenue". His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.
For the moment everything is fine because interest rates are incredibly low and the mockers in the "deficits don't matter" fan club are having a field day.
But what is going to happen when interest rates return to rational levels?
How will the U.S. government be able to borrow the trillions of dollars that it needs to borrow every single year?
That is why it is so important to watch interest rates. When they start skyrocketing, big trouble is ahead.