Debt, monetizing debt, lying about debt

The Senate voted to lift the debt limit by $781 billion last Thursday. Total debt is up to nearly $9 trillion. The Bush deficits keep adding to the pile. As big as they are, they are still being understated. Official numbers on the deficit depend on a continuing back door into Social Security Funds.

It's not that I mind filling Social Security Retirement and other funds with federal bonds. What I mind is the bankrupting of the operating budget by incompetence and lying and then concealing the extent of the crime. The level of borrowing is an important measure of solvency. A bond is a debt instrument. Claiming we're not borrowing when we are is a fraud.

I also mind the hoopla of a couple of Republican Senators objecting to this casino financing in the name of fiscal responsibility. This is strictly a show for the benefit of the folks back home. Big debt and Republicans go together (see chart).

The great preponderance of debt, as you can see, has been incurred during the stewardship of Republican presidents.

This is business as usual for them. Much like John Ashcroft showing up behind the desk of his own K street lobbying firm is business as usual.

A NYT story says that in an hour long interview, "Mr. Ashcroft used the word ‘integrity' scores of times." )

Integrity for Ashcroft is similar to fiscal responsibility for Republicans as a party, just labels on marketing props, not actual codes of conduct. The amount we owe has now ballooned to such an extent that, along with the impending expansion of Social Security and Medicare and the unwillingness of the GOP to face facts, the continued solvency of the federal government has come into question.

Will we be able to raise taxes to the level needed to pay off these debts and meet our entitlement obligations at the same time? Particularly when the party putting on the show is the hate-taxes party? Some financial advisors and economic observers have begun talking openly about "monetizing the debt."

"Monetizing the debt" is lingo for using the printing press to pay off bonds. It's an act of desperation. Obviously it is not expected by investors, because US government bonds are still trading at a high price. But they should worry. The security and liquidity of government bonds, which is why they are trading at such a price, is not guaranteed.

Most folks worry about inflation, which is inevitable with monetizing debt. I worry about default, or a "change in terms," where bonds are not paid as promised, but on an "adjusted schedule." After all, the printing presses are in control of the bankers, the Federal Reserve being the central bank. Bankers hate inflation. Screws up their interest rate calculations. Or it could be a combination.

Whatever happens won't be pretty. These are financial stresses never before seen, and the fallout will be both domestic and international.

But what else do we do? We are incurring debt at a sickening rate. Pretty soon money is going to cost more. Rising interest rates will mean a slowing domestic economy and higher debt service for the government.

In ten or fifteen years (no, not tomorrow), or when the cracks become apparent, we're into the deep doo-doo. In the Clinton era, Rubinomics combined with very low energy prices gave us the break we needed. Unfortunately, we didn't take advantage of it.

# Posted by Alan : 9:48 PM

A sad catastrophe is brewing

Thursday, December 29, 2005

The current federal debt is $8.1 trillion. Yes, $8.1 trillion. $8,100,000,000,000. Eight trillion one hundred billion dollars. This is the principle on which we are paying interest every year. See it to the penny at Bureau of the Public Debt.

The on-budget deficit, that is, the amount we are adding to the debt by borrowing from all sources including Social Security trust funds, was $567 billion in 2004. It will be at least $500 billion this year, next year, and every year until a change is made. Half a trillion dollars a year we are borrowing. At 5% interest, four years from now, that half a trillion will only pay debt service. At 10% interest? (Ten percent is conceivable, because who will lend us money with these kinds of books?)

Net interest is currently about one-tenth of federal spending. This is largely a legacy of the policies of Ronald Reagan and the first George Bush. Dubya is making them look like pikers. Inevitably the debt service will be crippling.

The Iraq War, the culture of corruption, the torture and habitual lying, the burning of the Bill of Rights, these are examples of a betrayal of America by the Radical Right under Bush and Cheney. Baffling in their audacity. Magnets for outrage. But the crime that is being committed on our economy.... Unless we all die before we want to, the burden will not fall solely on our children.

Bush and the Republican Congress are poisoning the future. They are playing war with other people's lives and gambling with other people's money. The Right Wing is ensuring the demise of popular (as in "of the people") social programs by these deficits, but the damage will not be confined to the structures we expected to carry us in dignity, but to the whole fabric of the economy.

It's worse than you think. See the Congressional Budget Office projections.