US debt

[David Guyatt]

An interesting perspective from The Slog:

US DEBT CRISIS: forget the ceiling, take a look at the foundations. Then you will realise…

BY JOHN WARD OCTOBER 11, 2013 ALIENS BILLIONS MARTIANS MILLIONS QUADRILLIONS TREASURIES TRILLIONS

…the US debt problem is insoluble

"Don't just stand there, raise the f**kin' ceiling"

As regards the continuing US deficit, there isn't a crisis, there never was a crisis, and there isn't going to to be a crisis about any US deficit, ever. It's under 4% of GDP and falling.
America may have reached its debt ceiling' of $16.7 trillion (that's 16,700,000,000,000 in zeros) but there are going to be talks and the ceiling will be raised. There is no debt crisis because there is no debt ceiling….it will just keep going up and up, because there is no way the GOP Business Party is more powerful than the banks and Wall Street, and no way anyone wants the American Dream to end.
What there is, however, is a debt problem. A problem is bigger than a crisis where you can solve the crisis, but there is no solution to the debt problem. As and when the cost of borrowing goes up which (as I've been saying since last February) it must then the debt will beyond management for even the Americans.
Consider: if average bond yields got up to 5% (10 yr T-bonds rose to 2.66% yesterday) then immediately 1 in every 6 US tax dollars would go on debt management. Not repayment, just managing it at $16.7 trillion. And that's before a single weapon is made, hospital injection given, or Federal employee paid. Historically, such a yield would not be at all unusual.
Last year, debt management was 6% of all Washington expenditure. This year it is going to be 10%. In a market of rising bond yields, that could very quickly get up to an MAT at 17%. If one big area of US expenditure isn't slashed and soon America will default much sooner than most observers realise.
If that happens, every single mammory gland in the global economic system will be pointing at the clouds. Such a default would set off a domino-chain of rising interest rates, widespread bankruptcy and currency collapses putting the world economy into the sort of deep depression Hard Left radicals can only dream about.
So what might cause that to happen? Sadly for Ben Bernanke (and even more so for Ms Yellen) the factors are circular and self-fulfilling. Because the US blue-collar class has lost 30% of its spending power, the US economy will not kickstart itself until that changes…in the short term, it won't. So to keep it going and the stock market looking healthy, QE is poured in. This raises Federal expenditure, raises the debt, and in the medium term must raise bond yields because it is further devaluing the currency. So as the deficit remains uncut and the debt ceiling rises more and more, one day confidence in T-bonds will tip the wrong way: in Beijing, it already has. Low confidence means higher bond yields. Without a big cut in current spending to slash the deficit, there is no way to avoid eventual default.
And that's what this debt crisis' is really about: which big lump of expenditure goes?
The Republicans want it to be social welfare in general, and Obamacare in particular. Those two together represent a staggering 43% of total US expenditure….with its ageing population lasting longer and longer before they shuffle off to the Maker.
Leftist Democrats would like to cut the Military down to size. Some of the stats here are equally mind-boggling: Defence spending is 20% of the total. Spending was $400bn a year in 2001; in 2012 it was over 50% higher:

But even at this level, as usual, the politicians are not simply squabbling: they're having a row about how many sticklebacks to use when killing the ogre.You will have noticed that all these numbers gobsmacking or not are in billions of dollars. The US national debt is $16.7 trillion. And there are a thousand billions in a trillion. Now think about this: Washington could cut all defence and medicare spending, and still only pay off (with interest included remember) $1.3 trillion of debt. That is a political impossibility in a so-called democratic country. When $1 in 6 is going on debt management per se, it's a financial impossibility: America will simply become a Big Fat Greek tragedy once the cost of borrowing reaches a certain point.Its only hope would be "Forgive our debt, or we nuke you". Don't imagine they haven't thought about that in the Pentagon.

[Charlie Prima]

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