The U.S. Government Will Borrow Close To 4 Trillion Dollars This Year

binford xlWhen you add maturing debt to the new debt that the federal government is accumulating, the total is quite eye catching.  You see, the truth is that the U.S. government must not only borrow enough money to fund government spending for this year, it must also “roll over” existing debt that has reached maturity.  Of course the government never actually pays any of that debt off.  Instead, it essentially takes out new debts to cover the old ones.  So the U.S. government is actually borrowing far more money each year than most Americans realize.  For fiscal year 2013, the U.S. budget deficit will be about $845 billion, but on top of that the government will also have to borrow about 3 trillion dollars to pay off old debt that is maturing.  Overall, the U.S. government will borrow close to 4 trillion dollars this year, and that number will likely be even higher next year That is not going to cause a crisis as long as interest rates stay super low, but if interest rates begin to rise substantially, the game will change dramatically.

 

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From The Economic Collapse Blog:

When the government borrows money, it has to pay it back someday.  Back in the old days, the federal government used to issue lots of debt that would not mature for a very long time.  But in recent years things have been very different

In order to fund the government, the Treasury Department periodically auctions Treasury securities with various maturities ranging from 30-day Treasury bills to 30-year Treasury bonds, with 2-3-5-7-year and 10-year Treasury notes in between. It used to be that the bulk of Treasury borrowing was done in the longer-term instruments with maturities of at least 10 years.

In more recent years, however, this trend has shifted more toward shorter-term Treasury securities. There are pros and cons to both strategies. Generally speaking, the shorter maturities are considered more risky since short-term interest rates can vary frequently. Shorter-term maturities obviously have to be rolled over much more often. That raises the risk that there might not be enough buyers when the government needs them.

At this point, the average maturity of outstanding government debt is only 65 months, and only about 10 percent of all Treasury debt matures outside of a decade.

So what does that mean?

It means that the federal government must constantly roll over massive amounts of debt.  Once again, this is not too much of a problem as long as interest rates stay super low, but as John Cochrane pointed out, if rates start rising back to “normal” levels things could get quite hairy very quickly…

Here’s the nightmare scenario: Suppose that four years from now, interest rates rise 5 percent, i.e. back to normal, and the US has $20 trillion outstanding. Interest costs alone will rise $1 trillion (5% of $20 trillion) – doubling already unsustainable deficits! This is what happened to Italy, Spain, and Portugal. Don’t think it can’t happen to us. It’s even more likely, because fear of inflation – which did not hit them, since they are on the Euro – can hit us.

Sadly, those running things appears to be quite clueless.  For example, retiring U.S. Representative Michele Bachmann recently asked Federal Reserve Chairman Ben Bernanke why the national debt has remained frozen in place for 56 straight days even though we have been borrowing lots of money.  Bernanke seemed to have no idea how to answer that question

As Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee Wednesday, Bachmann asked how there could be no increase reported in the total debt when the government is racking up about $4 billion a day in new debt.

“After nearly 10 years as the head of the Federal Reserve, Chairman Bernanke could not answer my question today in Financial Services Committee,” Bachmann told WND.

She wondered if there’s a political motive.

“I asked whether the Treasury Department was cooking the federal government’s books as it was reported that the Feds debt balance sheet remained at $16,699,396,000,000 for 56 days straight, presumably so the Treasury Department wouldn’t officially register that once again the Congress had exceeded its legal borrowing limits.”

For the moment, the federal government is able to recklessly borrow and spend money and investors are rewarding this behavior with super low interest rates.

Unfortunately, this state of affairs is completely and totally unsustainable.  At some point global financial markets will begin to behave rationally, and when that happens it is going to mean a tremendous amount of pain for the United States.

Over the past decade, the U.S. government has added more than 11 trillion dollars to the national debt at a time when the U.S. economy has been steadily declining.  Anyone that thinks that we can continue to pile up more debt like this indefinitely does not know what they are talking about.

The following are some more statistics about the U.S. national debt for you to consider…

-Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

-During Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

-The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.

-If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

-Some suggest that “taxing the rich” is the answer.  Well, if Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

-If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

-The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.

-At this point, the United States government is responsible for more than a third of all the government debt in the entire world.

-The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

-The U.S. national debt is now more than 37 times larger than it was when Richard Nixon took us off the gold standard.

-The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

-Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

For the moment everything is fine because interest rates are incredibly low and the mockers in the “deficits don’t matter” fan club are having a field day.

But what is going to happen when interest rates return to rational levels?

How will the U.S. government be able to borrow the trillions of dollars that it needs to borrow every single year?

That is why it is so important to watch interest rates.  When they start skyrocketing, big trouble is ahead.

War Bird

Comments

  1. Translation:
    Borrow – Print.

    • I wish it was ‘print’.  At least that way we would have no debt with our devalueing dollar.  However, the way the system is set up the U.S. gov’t actually borrows the money from the Federal Reserve Bank and secures the debt with the income tax.  President Kennedy recognized the economic danger in this and directed the Treasury Dept. to bypass the Fed and begin directly printing U.S. notes.  I have one.  It’s a 1963 Five Dollar U.S. note.  But, we all know what happened to him.

    • That is if the G19 hits the reset  button , meaning all debts are eliminated, US becomes a Republic, & the END OF THE FED?

    • He was honored with a 90% Silver half-dollar for one whole year?

    • “Translation:  Borrow – Print.”
       
      Right… but you left out “repeat”.  :-(

    • “President Kennedy recognized the economic danger in this and directed the Treasury Dept. to bypass the Fed and begin directly printing U.S. notes.  I have one.  It’s a 1963 Five Dollar U.S. note.  But, we all know what happened to him.”
       
      Yes, we do… and to several other people who dared to pitch a little poop into the banksters soup.  Names like Andrew Jackson (5 attempts, none successful) and Abraham Lincoln come to mind.

  2. A bit off subject and good news for JPM, Blythe Masters, and SLV.  61 tons of silver recovered from a shipwreck.
     
    http://news.yahoo.com/odyssey-exploration-recovers-silver-shipwreck-132757283.html
     
     

    • I’ve watched a few TV shows wherein the Odyssey crews were at work salvaging various goodies.  Fascinating tech for sure.

  3. Michelle Bachman asks Ben Bernanke why the federal debt appears to be stuck at 16.699 trillion. Why would she expect him to answer that? He’s not the one borrowing it or spending it. I suppose his fed is selling the government the rope they’re using to hang themselves (and the country).  Maybe she would be better served to ask Jack Lew (the Treasury Secretary) that same question, or better yet, ask it of her money spending congressional colleagues.
    BTW, while checking the Treasury site and noticing that the reported debt has bumped to 16.738 trillion as of 7/19, I noticed a link to “how to make a contribution to reduce the debt!” Bet that link is being worn out by those who feel guilty about not paying enough taxes. These people will never stop.

    • Without Ron Paul on the committee the questions alone show how ignorant our elected representatives are.

    • “These people will never stop.”
       
      No, they won’t.  Money IS power in DC and power is more addicting than heroin.  They will not stop until they simply cannot do it anymore… sort of like Detroit writ large.  Whether that occurs from a financial collapse of epic proportions or them dangling at the ends of ropes for treason, it WILL happen.  The bad news is that we are all gonna get sprayed with BS in the process of it happening, regardless of the final outcome.

  4. “For fiscal year 2013, the U.S. budget deficit will be about $845 billion, but on top of that the government will also have to borrow about 3 trillion dollars to pay off old debt that is maturing.  Overall, the U.S. government will borrow close to 4 trillion dollars this year, and that number will likely be even higher next year.”
     
    Every single American who has ever worked out a family budget is completely aware of just how unsustainable this system is.  Government is no different, it’s just larger and able to behave stupidly with money for a longer time.  The end result will be the same as it is for those of us who continuously spend more than we make, however.
     
    “So what does that mean?  It means that the federal government must constantly roll over massive amounts of debt.”
     
    This is a point that needs some emphasis.  What does it mean to “roll over debt”?  Well, it’s basically the same thing as if we were to try to pay off one credit card with another credit card.  This is lousy financial planning.  It WILL fail and it will fail rather spectacularly.  It always does.
     
    “For the moment, the federal government is able to recklessly borrow and spend money and investors are rewarding this behavior with super low interest rates.”
     
    No, IMO, that is not what is happening here.  The Federal Reserve has seized control of the UST bond market.  They have long set the short rates but are now also setting the long rates as well.  This didn’t used to be the case.  It used to be that the Fed set the short rates and the bond market itself set the long rates.  If the government got to spending too freely, the big buyers of bonds, aka the bond vigilantes, could force the government to raise the coupon rate on their bonds simply by refusing to buy them.  The very last thing that any government wants is to have a failed treasury bond auction.  This is an auction where more bonds are offered for sale than the market is willing to buy.  If this were to occur, it would give the Gov a VERY black eye in the credit markets and all manner of bad things would then start happening.  So, to avoid this, the Fed is now and has been for some time, the bond buyer of last resort.  IF the bonds that the Gov wants to sell are not purchased by anyone, the Fed will scoop them up and the Gov can then smile and say to the credit market, “See all of our bonds were sold.  They are in demand and are worth buying.”  While this worked for a while, it is now clear that this is not the same as a free market sellout of a bond offering.  Many investors, including institutions, are now boycotting UST paper for this very reason… interest rates have been artificially manipulated down and the current interest rate on UST paper does not adequately compensate buyers for the risk that they would have to accept if they were to buy these bonds.  So, with the exception of some die-hard bond buyers, they are simply not buying them.  Interest rates are held in a hammerlock and cannot rise until the Fed is good and ready for them to rise.  Interest rates have recently spiked but you can well believe that the Fed is now taking action to cause them to fall back to whatever level the Fed finds acceptable.  This process has already started and we already have seen rates pull back a little.  This is just another aspect of the great manipulation that is occurring in the financial system these days and it IS a real doozie.
     
    “Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.”
     
    Kotlikoff is a truly brilliant fellow and is probably one of maybe a half dozen or so economists who truly knows whereof he speaks.  When he chooses to speak, the rest of us should choose to listen.  For one thing, it is doubtful that he is fooled by the bogus numbers that the US Gov and Fed are spewing.  He is well aware that earned income is falling in the US and has been for the past 5 years.  This does not bode well for tax receipts being sufficient to pay for all the government we have.  
     
    Speaking of which, it is my thesis that the US has about double the amount of government that it can afford.  The excess of it is literally consuming the nation.  Wealth that should be pouring into the private sector to grow the economy, advance technology, and increase employment is in increasing amount being shoveled into the non-productive maw of government at various levels.  If this trend is not radically reduced, and sooner rather than later, we will have a financial collapse of historic proportions.  We will do so not because of arguable politics but because of inarguable mathematics.
     
    As proof of this thesis, consider this:  US tax receipts for 2013 will be approximately 2400 billion dollars.  US Fed Gov spending will be about $3600 billion, leaving a shortfall of $1200 billion.  Some of this is “off the books” and not claimed by the Gov but it is real nonetheless.  This unclaimed spending amounts to about $350 billion dollars, leaving the $850 billion “deficit” mentioned above.  If the government were to be cut in half, that would lower the spending from $3600 billion to $1800 billion.  This is about $600 billion less than is currently collected in taxes.  Using this $600B to pay down the national debt of about $17,000 billion would mean that in just over 28 years, the debt could be fully discharged.  But things never play out in a straight line like this, so we probably cannot pay $600B every year due to other necessary expenses and we would have to phase in these cuts so as to not shock the economy too severely.  Given that, say it takes 40 years to completely pay off the US national debt.  Now that would be one helluva fine gift to give to our progeny.  One can only imagine the power of a US economy that is not continuously bled white by excessive government spending and debt.  While we are at it, we should change the way in which the US Gov spends money such that this problem does not recur… because if it CAN, it WILL.
     

  5. The states need to tell DC no more and become independent. No more federal government, quit paying taxes, let DC sink, they owe the debt not the American people.

    • The states created the Fed Gov and they can by-God un-create it too.  34 states have rejected setting up those stupid Obama Care exchanges.  One would think that a similar number would be in favor of scrapping the whole federal mess and returning to Constitutional government… which is to say SMALL government that we can afford and that does the minimal public services needed for a stable country and not the other majority of crap that is pretty much useless AND unaffordable.

  6. Unfortunately, we can never pay off the debt, because fiat money would disappear.  It only comes into existence when debt is created.  Our FRNs are only backed by debt.  Eliminate the debt, and you essentially eliminate the currency.  

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