The Treasury Department laid out near-term borrowing plans Wednesday, saying it expects to tap financial markets for $550 billion in the final three months of 2008 and another $368 billion in the first three months of next year by issuing Treasury securities with a wide range of maturities.
Economists project that total government borrowing could pass $1.5 trillion in the fiscal year, which ends next September, pushing up the government's total debt burden by more than 25% in one year.
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The sharp rise poses a potential dilemma for Mr. Obama's ambitious agenda. Few economists believe the Treasury will be constrained in the next year in its ability to manage its rising borrowing needs or in advancing another fiscal stimulus program. But in the long run, rising government debt could make it harder for Mr. Obama to pursue new spending and tax-cut programs aggressively.
"I don't think that anything on the stimulus end will be constrained by these deficits," said David Greenlaw, a Morgan Stanley economist. "But if you're talking about health-care reform and some of these longer-term programs, there is some constraint there."
Let's get some political baggage out of the way before we go forward.
I've been complaining about the deficit for the last 4 years. And I will continue to complain about the deficit for one primary reason: as a country we have to make choices. Some things are more important than others. Those things we find important we should spend more money on.
Over the last 8 years we have not made any choices. Instead we have funded, well, everything that has come down the pike. In addition, we cut taxes, further exacerbating the problem of deficit financing. As a result, we have issued mammoth amounts of public and intra-government debt. Here's a reading of the last 8 years from the Bureau of Public Debt:
09/30/2008 $10,024,724,896,912.49
09/30/2007 $9,007,653,372,262.48
09/30/2006 $8,506,973,899,215.23
09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/30/2001 $5,807,463,412,200.06
09/30/2000 $5,674,178,209,886.86
The current total is $10,566,146,196,490.58
From a debt as a percent of GDP perspective we have increase from 57% in 2001 to 73% at current levels. Now -- it's entirely possible for the US to issue more debt. I would become extremely concerned at the 85% and higher level. That means we have some way to go. But there are other problems involved with that development.
1.) Interest rates. Here is a chart of the 10 year CMT's interest rate for the last nearly 40 years.
Click for a larger image
Clearly rates have been heading lower. Will the issuance of all this debt finally break this cycle? Will the US finally start having to pay for a higher rate of interest to attract purchasers?
2.) The dollar. While the dollar has enjoyed a rally recently more debt could kill that pretty quickly.
Click for a larger image
While a drop in the dollar would be great for exports it would also be stoking commodity based inflation because most of the world's commodities are priced in --- dollars.
In other words -- there are a lot of policy angles we need to consider going forward.
3 comments:
1)Clearly rates have been heading lower. Will the issuance of all this debt finally break this cycle? Will the US finally start having to pay for a higher rate of interest to attract purchasers?
The thing is, right now, US treasuries are seen as the safest thing in a turbulent market. So people are lining up to give us money. So through the time when we'll need to be dumping money into the markets you can expect people will want to hand over the money to be dumped. I am curious to see what happens when the market recovers and people's demand for treasuries declines.
The costly failures of our lack of a national health insurance system is difficult to measure. Watch out, you know what they say, If it is measured, it's managed, if not ...
Consider Joe Six Pack and his lovely wife and 2.3 kids, a nice home in the suburbs, two cars, some credit cards. They work hard and make their regular payments on the credit cards, make the car payments, pay the mortgage. If they lose their jobs and their medical insurance, and then get seriously sick, they are doomed.
She finds a lump in her breast, J6P has a heart attack, soon enough they are bankrupt. (The leading cause of bankruptcy filings is not liar's loans, it's medical costs.) The credit card issuers don't get paid, the auto finance company doesn't get paid, the mortgage lender has to foreclose, the docs and the hospitals don't get paid, J6P and family lose everything, everybody is f***ed. Some employment may occur for all the lawyers, paper-shufflers, and vultures involved in a bankruptcy proceeding, but surely no national wealth is created. Is this a great system or what?
The financial cost of continuing to go without health coverage for every taxpayer is a waste the economy cannot afford, least of all in hard times like the years that lie ahead.
Woody:
I am glad that someone else is finally saying this. I have been screaming it for years. In fact, it was the first thing I said on my blog in 2006.
Of course, as a former bankruptcy attorney, I was on the front lines, so I am a little biased.
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