…the US debt problem is insoluble
“Don’t just stand there, raise the fuckin’ ceiling”
The Slog: 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.
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.
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