Friday, September 10, 2010

Where are we gonna get $5.2 Trillion in 36 months?

An excellent and disturbing article surfaced Friday in the Wall Street Journal, titled "Treasurys and the Danger of Short-term Debt." It is an essential read to understand how bad things get when a body (the United States federal government) buys things it can't afford.

The author is Jason Trennert of Strategas Research Partners. As the title suggests, Mr Trennert details the super massive, incredibly huge, stunningly irresponsible Geithner strategy of short-term funding. To be "precise," Mr Trennert states:

"One wonders how Treasury Secretary Timothy Geithner can sleep soundly at night with the knowledge that more than 60% of America's sovereign debt is set to mature within the next three years. To be precise, $5.2 trillion of U.S debt comes due in the next three years out of $8.3 trillion outstanding."

So, exactly where are we gonna get $5,200,000,000,000 in the next 36 months? Don't ask Mr Geithner--he's too busy sleeping!

We should all wonder how Mr Geithner sleeps at night, even for reasons other than those mentioned by Mr Trennet. But, of course, I think he sleeps just fine, because I do not for one femtosecond believe that anything in the interest of US sovereignty and free enterprise, the rule of law or economic integrity is of any concern whatsoever to former FRBNY-head-turned-Treasury-Secretary Mr Geithner. Interestingly, this is consistent with a trend of recent Treasury Secretaries, as none of the above-listed jewels were of any concern to his predecessor Mr Paulson, which, of course, was a trait Mr Paulson had in common with his predecessor, Mr John Snow, and of course which his predecessors also shared, especially Mssrs Summers and Rubin. This very manifest trait is attention-worthy as we discuss short-sightedness, and can perhaps best be summarized by former president Bush's second Treasury Secretary, Mr Snow, who stated to the NY Times in December 2008 the following remarkable and completely insane admission:

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house."

(Pause. Blink twice. Re-read.)

This is coming from the TREASURY SECRETARY of the UNITED STATES of AMERICA!

Oh heavens. So, of course Mr Geithner sleeps like a baby. In fact, word at the Bankster Report is that "jobs" funding from the American Economic Recovery and Reinvestment Act of 2009 actually including a project to retrofit the walls of the US Treasury building with the latest space-age sound-dampening technology to make certain that they are utterly and completely incapable of being penetrated by any noise, static, or information whatsoever from the outside real world, particularly the deep, rumbling groans of the international debt market or incessant clamour of the bond vigilantes as they chisel away at their chains!

Nevermind the tick, tick, ticking of the clock as this Ponzi scheme's lifespan grows ever shorter. The revolving door of debt-financed-by-more-debt is the only option for Treasury. Repeat: more debt is the only option. The huge problem here is, of course, that with the Fed funds rate at effectively 0% (officially zero to 0.25%), the price of money will only increase. The Treasury will be forced to buy money at a higher price--but that's not all. Remember how Treasuries work: besides the fact that debt eventually matures over a specific time frame (3-months, 5-years, 10-years, whatever), there are also coupon (interest) payments that must be made periodically. Currently, the strategy for satisfying these coupon payments is largely to--you guessed it!--borrow yet more money. But as rates rise, which is an absolutely and indisputably inevitable reality, so will the coupon payments and yield of this US debt also rise.

If you have time for only one link in this post, make it this one: US Treasury: Monthly Treasury Statement. This is the August 2010 checkbook of the US government. Its very nicely put together, excluding the choice of Treasury to actually denote surpluses with a "-" mark (yeah, a minus mark for surpluses), as surpluses are so rare. Scroll to page 4, however, and you'll see the importance of this report in the discussion of the cost of the funding spending and making interest payments. Firstly, note that these figures are in Billions. Next, scroll down to the line titled "Department of the Treasury." Here's what you'll see:

"Department of the Treasury:
Interest on Treasury Debt Securities (Gross):

1.) This month: 20,521
2.) Current fiscal year to date: 395,769
3.) Comparable prior period year to date: 367,839
4.) Budget estimates for full fiscal year: 419,732"

1.) In the month of August alone, the Treasury paid $20,521,000,000 in interest payments.
2.) From January 1 through August 31, the Treasury has paid $395,769,000,000 in interest payments.
3.) Compared to this time last year, the Treasury has paid 7.5% more in interest payments.
4.) Treasury is expecting to fork over $419,732,000,000 in interest payments for the year 2010.

This is not good.

Here is another great page for seeing this horrible fiscal recklessness in glaringly full color: From the homepage:

"Suppose you want to spend more money this month than your income. This situation is called a "budget deficit". So you borrow (ie; use your credit card). The amount you borrowed (and now owe) is called your debt. You have to pay interest on your debt. If next month you don't have enough money to cover your spending (another deficit), you must borrow some more, and you'll still have to pay the interest on the loan. If you have a deficit every month, you keep borrowing and your debt grows. Soon the interest payment on your loan is bigger than any other item in your budget. Eventually, all you can do is pay the interest payment, and you don't have any money left over for anything else. This situation is known as bankruptcy."

And this is nicely and appropriately demonstrated with very alarming colors and tons of data from the Treasury itself. If you can look at these facts that not become alarmed, then congratulations, you are officially qualified to enter the pool of potential future Treasury secretary candidates! For the rest of us--you know, people who actually understand the financial, political, and moral gravity of debt--this is just horrible! So lets pick at this wound some more.

According to the US Treasury, the 2010 estimate for total interest payment outlay is inching closer to half a trillion dollars, at $419,732,000,000. Another way to look at this is:

$1,149,950,684 per day
$47,914,611 per hour
$789,576 per minute
$13,309 per second

In the time it takes you to make a pot of coffee, your government's interest bill has increased by nearly $8 Million dollars, a total which 95% of Americans will never make in their entire lifetimes. But this is, of course, not anything new, as the US government has been spending more that it recieves for 41 years. What Mr Trennert is drawing attention to is that $5.2 Trillion in maturities is coming due over the next 36 months--on top of this $1.15 Billion of interest due each day.

So what is that $5.2 Trillion over 36 months, excluding interest? Try $144.4 Billion per month: yeah--that huge $20.5 Billion paid in interest in August 2010 alone will be dwarfed by the $144.4 Billion in principal payments due per month for the next three years! We obviously do not have the money for this, so that leaves us one option: borrow more. And more. And more....

...and at higher, and higher, and higher rates.

Ever hear the one about the camel and the straws?