Something I feel like grandma warning to look both ways before crossing the street, and to tie your shoes or you may trip as we talk incessentently about these issues.... to a wall, it appears.  No one listened about our warnings on Fannie/Freddie, no one is listening now about FHA, no one cares about our pension disasters, so who is going to listen to the issue that will make those 3 look like small fry. [Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]   If David Walker, who tried for a decade to get their attention from within the snake had no chance, I guess all we can do is talk about these things for amusement purposes.  [May 23, 2008: David Walker on CNCB this Morning] [Nov 23, 2008: David Walker in Fortune Magazine]

Bottom line, is we - along with a few other nations - are on a grand experiment to see how far we can push the boundaries of debt explosion.  [Jun 12, 2009: NYT - America's Sea of Red Ink was Years in the Making]  The year to year budget deficit is one thing [Aug 26, 2009: US Federal Budget in Picture] but those funded liabilities are truly a terror. [USDebtClock.org]  I laugh at myself now when I was warning of deficit projections back when they were hundreds of billions a year.... how quaint. . [Jul 28, 2008: US Budget Deficit to Half a Trillion] [Aug 24, 2009: Cumulative Deficit Estimate for Next Decade Increased by $2 Trillion.... Since May]

So for your amusement only... I present the biggest subprime borrower in the history of mankind.  Who biggest creditor says they hate what we are doing [Feb 13, 2009: Ft.com - China to US: We Hate You Guys], and continues to move into shorter and shorter debt durations for the eventual parting of ways. [May 21, 2009: NYT - China Becoming More Picky About Debt] As a country only reacts to emergencies, all these issues warned about for years on end will be addressed (the question is how? other than money printing) when we're in full blown panic mode. 

[please click to enlarge that graphic to the right]

Via NY Times:

  • The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.   But that happy situation, aided by ultralow interest rates, may not last much longer.
  • Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.  (on that latter point, that could be YEARS)
  • Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
  • With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.  (keep in mind our ENTIRE economy is $14 Trillion in a good year, and we're now approaching 20% of that going to healthcare)
  • In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
  • The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
  • Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
  • The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.  (is there any question?  the debate is over on that last question - the youth have squarely been pegged as the ones who should subsidize those who roam the country taking handouts gladly today)

Just call us Subprime Sam... our serial refinancing Uncle.

  • The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

What I love is the cries that demand for our debt is so solid now... no one points out that the Federal Reserve is a massive buyer of our debt (call this moving the money from under 1 shell to another) via direct purchases and through indirect purchases.  The latter is even more dastardly as we are using the banks to hide the bodies... banks borrow from Federal Reserve at nearly nothing, and buy debt from US Treasury.  We all win - the banks make a profit on the spread between borrowing at 0.0 to 0.25% and what the government pays them on the debt, and we can can all chime in at how much demand there is for our debt! 

  • So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them.  “All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”

In that case, why should anyone work?  Let's just issue more debt and hand it out to people so they can stay at home, enjoy leisure and shop.  The perfect economy. 

  • The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. (Social Security is a pebble compared to the tidal wave that is Medicare)  The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.

Again, that is what people under 25 are for.  Thankfully if we keep them financially illiterate they won't even know what has hit them....  still no required economic classes in high school right? 

Right! Cool! (insert sinister laugh here)

  • What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

No problemo.  The Fed will just print more nuts next winter Mr. Gross.  Yummy!

  • The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
  • On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. (that's not even an accurate statement - it did not use almost every tool... it used every tool and then created new ones that had never been thought of before.  When you have a cornered elite, they become very creative) It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages. 

But not to worry, it won't just be us... many of the world's largest economies will all be competing for this global pool of capital to fund their excesses.  Japan's been the leader on this front for decades but 85% of their debt is held by their own citizens since they do this crazy thing over there called... saving money.  We're not so fortunate here, so we have a very different mosaic to face.

  • The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn.
  • As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates
  • Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.  But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
  • The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.

Oh well, it all sounds so difficult and this lame blog writer is putting a lot of numbers that are hard to understand.  All I know is it always works out in the end with no cost to myself... now where is that flier for Black Friday! Shopping time!