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U.S. IN TECHNICAL DEFAULT
by Dr. M
(AKA Dr. Chris Martenson)
January 27, 2006
In a shocking development, the Treasury Department website is openly
stating that as of January 24, 2006 our national debt stood at $8,185.3
billion and on January 26th at $8,190.5 billion.
http://www.publicdebt.treas.gov/opd/opdpenny.htm
Yet the US national debt ‘ceiling’, the maximum amount of debt the US
government may hold at any one time, stands at $8,184 billion – a full $5.5
billion less. Although called upon by John Snow, Congress has not yet
passed an expansion of the debt ceiling and so the US government is now
operating in technical default.
You may recall that when last the debt ceiling was approached in the
months surrounding the 2004 elections, the Treasury department furiously
employed every accounting trick in the book (and then some) to avoid
breaching the limit. They even went so far as to take the unprecedented
step of borrowing $14 billion from the Federal Financing Bank to cover up the
shortfall.
But they never breached the ceiling.
On January 24th they breached it brazenly and openly and with nary an
accompanying explanation. Neither have any lawmakers have broached this
indelicate subject.
I suppose we could write this off as merely an unsurprising development from
a government that no longer bothers to even appear to be adhering to rules,
laws and procedures, let alone actually doing so.
But the silence is all the more troubling because there is an unprecedented
level of government borrowing on the books for 1Q06 with next 2 weeks
(Feb 1st to Feb 9th) an especially busy period of time. An ambitious ~$70
-$80b in Treasury paper will hit the market.
The federal government does not have the legal authority to borrow above
the statutory debt limit, which raises the prospect of emergency
congressional action to avoid a full-fledged default.
Congress will probably attach a rider to a “must-pass” defense appropriation
bill and ironically title it “The Fiscal Responsibility Amendment of 2006”. And
if they do, $50 says they do it very late on Friday night.
Since the debt ceiling has been raised 50 times over the past 40 years,
hoping for some rational debate on the matter would be an extravagant
indulgence. Time spent wishing pigs could fly would offer a far better
potential return.
Another odd facet of this story is the deafening silence from the financial
press (and I use that term loosely) regarding this matter. Leaving aside the
issue of a technical default, one wonders why questions aren’t being asked
about the rate of debt accumulation and whether it’s sustainable.
The last debt-ceiling adjustment was $800 billion and was passed in
November 2004. Now, on January 24th 2006, it is entirely gone. $800 billion
in only 16 months for an average of $50B a month.
Factoring out the plundering of excess social security contributions, the US
government borrowed $52B in 3Q05, $96B in 4Q05 and expects to borrow
$171B in 1Q06. A trend nearly as mind-boggling as the soon to be
discontinued M3 series.
Why do I even bother to pen such distressing factoids?
Because in all my time studying economics I have determined only one thing;
there’s no free lunch. Pay now or pay later but pay we will.
Or, more accurately, we hope that our kids will, and not stiff us for the bill.
But if they did, who could blame them?
I, for one, would not be shocked.
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Not only is the National Debt growing faster than we can pay
But now, due to lack of action in Congress,
the Debt ceiling was not raised in time.
The USA is legally in default.
for the first time in history
I wanted to know what this could mean for us
Found this To explain better
From a past time we got dangerously close...November 13, 1995
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"Debt ceiling" (or "debt limit"):
This term deals with government authority to borrow money. A debt ceiling
extension would give the U.S. Treasury Department additional borrowing
authority once it reaches the current $4.9 trillion dollar debt limit. Without
an extension, the U.S. government loses its ability to borrow money and to
make interest payments due this week. That would put the U.S. government
in default for the first time in its history. To avoid this, the Treasury
Department on Monday scheduled securities auctions to raise money.
Treasury Secretary Robert Rubin also has said he might use cash from
government-run retirement funds to prevent default.
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