Let’s pretend the US is a company.
For starters, this company has a massive debt problem. The official number is $12 trillion and counting, which is roughly the equivalent of one year’s annual production. On the surface, that’s not TOO bad.
However, if you treat the US’s balance sheet according to Generally Accepted Accounting Principles (GAAP) you have to also consider future liabilities in the form of Social Security and Medicare, which puts total debt at $65 trillion: an amount equal to 5 years’ worth of production: a REAL issue.
A debt load of this size requires massive sales and cash flow to service it. However, the problem is that the company’s primary sales segment (tax receipts) is plummeting. Indeed, individual income tax receipts are down nearly 30% from last year (a year that the economy was already falling off a cliff). Similarly, corporate tax receipts are negative.
Now, the company has just gotten a new CEO (the old one left after racking up this massive debt load). However, rather than trimming the fat from the company, he’s decided to INCREASE its operating costs/ annual spend. So the company is now having to issue MORE debt (roughly $150 billion a month) at the same time that it is trying to roll some of its OLD debt over.
This MIGHT work if the company’s current debt holders (foreign governments, especially China and Japan), weren’t already beginning to doubt that they’d ever get their money back.
Indeed, a few weeks ago, the Treasury Department released its Treasury International Capital Data for October: the numbers showing foreign interest in new debt issuance. The following is a BIG deal:
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $8.3 billion (Graham’s note: we’ve issued nearly $2 TRILLION in debt this year).
LINK HERE
Oh, okay, so its not that the trucking industry is going to fall to pieces and everyone is going to starve, or that the Fed Reserve is collapsing the stock market, or the food shortage, or martial law, or the H1N1 virus, or the Mexicans hi-jacking all of our precious big-rigs and going on killing sprees across the country like mad bandits with machetes, ok sorry, duly noted LOL....
ReplyDeleteThere is also a good chance that private investors, China and Japan will keep buying bonds for the next few years.
ReplyDeleteAs soon as China feels confident enough to write off their investments in US bonds, they will do so.
The governments of the U.S and the European countries will be shouting that they solved the crisis with their actions. (“solving” a debt crisis with taking on a lot more debt).
They will want to solve the next crisis by taking the same actions as they do now. That will fail.
The bonds bubble will burst, but with a bit of luck it will be six to seven years from now.
Haiku:
ReplyDeleteQuantatative Hyperinflation
Looming Crisis
The Amero
We don't have to pretend the USA is a company. It is in fact a Corporation with the parent company being the Bank of London and our elite owners. Every US citizen is owned stock.
ReplyDeleteIn terms of trendlines verse Elliottwaves a major "wave B" just ended. We have entered a "wave C" as of today (TODAY) which will result in massive losses in the DJI in 2010.
ReplyDeleteI would put 50% of assets into treasurydirect.org in short term instruments only or certificates of indebtedn ss and 50% in a safe brokerage firm split among SDS, SKF and EEV.
Best of luck to you.