Debt Ceiling
The House passed a Budget deal on October 28, 2015 that, among other things, will extends the government’s borrowing authority through mid-March 2017. In 2013, the Republican-controlled House and the Democrat-controlled Senate negotiated with the White House on three fiscal matters with looming deadlines: raising the debt ceiling now approaching the limit $16.5T, massive federal spending cuts known as sequester and a budget resolution. On February 4th, the President signed a bill into law extending the debt limit debate until 5/18/13. This date may also get extended as far as August due to financial manipulations similar to those used in 2011. The "No Budget, No Pay Act of 2013" also mandates that pay for lawmakers be held in escrow starting April 16 until their chamber has passed a 2014 budget resolution. Congress must pass a spending bill, called a continuing resolution or “CR,” which would continue spending after Sept. 30, 2013, the end of the 2013 fiscal year. As it stands now, the government’s legal authority to borrow more money runs out in mid-October, 2013. According to the Bipartisan Policy Center, if that date arrived on October 18, the Treasury “would be about $106 billion short of paying all bills owed between October 18 and November 15. The congressionally mandated limit on federal borrowing is currently set at $16.7 trillion. The debt limit has been raised 13 times since 2001 and has grown from about 55 percent of Gross Domestic Product in 2001 to 102 percent of GDP last year. The hoped for legislation will raise the debt ceiling through Dec. 31, 2014.

Broken Debt

from Maudlin Economics,

There is no positive benefit to compounding interest rates below the rate of inflation. My last letter explained how official government inflation measurements are low in part because our benchmarks distort some important costs like housing. Today I’ll show how the same applies in healthcare. Then we’ll ask cui bono—who benefits—from persistently low interest rates. The answer is borrowers, which is problematic when the biggest borrowers (the Fed and the US government) of all both control rates and provide the data to justify it. Is it any wonder we have a debt problem? And a lot of the debt comes from healthcare, so it’s all a big circle. The outlook is bad and getting worse. Of course the market, in the forms of TIPs and similar instruments, projects inflation higher than the government measures. They can’t both be right. We are going to look at broken debt and broken measurements, and then look at how Fed leaders painted themselves into a corner by shifting to a reactive stance this week.

...the broader point is that the Fed relies on PCE to measure inflation, and we know PCE significantly understates housing and healthcare costs as experienced by typical families.

This is one reason Fed officials see little inflation and expect little more in the future, and thus keep interest rates low. They encourage and subsidize excessive debt… and the biggest debtor is taking full advantage of it. Thus when they say they want inflation to average 2%, they’re using a false measure,

Debt Trap One of my favorite sites is also one of the most terrifying: US National Debt Clock. It has real-time, running tickers showing government debt and literally scores of other related statistics. Here’s a screen snap from earlier this week.

Last September in Great Reset Update, I estimated a $50 trillion federal debt by 2030.

This week I noticed the US Debt Clock has a 2025 projection page, which simply presumes everything continues at today’s rates for four more years. It puts the debt at $49.7 trillion in March 2025.

I am asked all the time how long this can go on. Is there an end in sight? The simple and honest answer is that we don’t know. The US dollar is the world’s reserve currency. Japan is a secondary reserve currency, as is the euro. Japan and many European countries, (and strangely, Singapore) are all running debt-to-GDP ratios higher than the US is today.

This is a massive poker game. The market knows the Fed has a strong hand, but doubts the Fed’s willingness to play it. The Federal Reserve hopes markets will fold. Maybe, if the stock market falls 20% (a real possibility if inflation reaches 3.5% and the 10-year yield exceeds 2% this summer). We don’t know yet how much effect the stimulus will have. Will recipients save most of it like they did last time? Will they put it in stocks? Will consumer spending and supply chain problems push prices higher? The Fed is betting the market will tolerate higher inflation.

More From Maudlin Economics:

365 Days Page
Comment ( 0 )