Treasury Debt

The Treasury said they will sell $51 billion in securities in its quarterly refunding auctions this week with $22 billion of two-year notes on Tuesday, $15 billion of five-year notes on Wednesday and $14 billion of 10-year notes on Thursday. They will use $11.44 billion to pay back maturing or called debt and the balance of nearly $40 billion is new cash for the government to spend. This is the way all of the quarterly auctions work. Each quarter we have to borrow enough money to pay back the money we previously borrowed plus finance the current deficits.

Close to 70% of all federal debt matures by the first quarter of 2007. That means we will have to borrow two-thirds of our current debt outstanding, plus the current federal deficits, plus the additional costs to finance the war in Iraq and Afghanistan…all in the next two years. We will truly need some extra help from our foreign friends in the next two years to pull this one off!

It sure makes one wonder why the government stopped issuing 30-year bonds back in October 2001. We have been re-financing 30-year debt with two, five, and ten-year debt. In the near-term, shortening the maturity of our national debt brings down our cost of interest payments, but for the long-term this is not good. It is the same as the government taking out a variable rate loan when they should be locking-in historically low rates for the longer-term.

Why is the shortening of maturity not good for the long term?? Heres an example from one of the 48 states that are currently running their own deficits: The State of New York debt has grown to $46.9 billion in 2004 from $14.4 billion in 1990. The state is increasingly borrowing to pay for short-term operating expenses instead of using it to pay for needed long-term capital projects, forcing future taxpayers to pay for services provided in the past.

The comptroller's office found that "$7.7 billion of the state's new borrowing over the past four years, provided no capital asset to the state - not a building, not a bridge, not even a paved road that will last as long as this debt." New York has the second-largest debt in the nation, after California.

We are dependent on the international financial community to loan us $2 billion a day to keep things afloat. China and Japan are our largest creditors. China would have to ease controls on its currency within six months or face a 27.5% tariff on exports to the US under legislation to be introduced in the Senate tomorrow. Pigs will fly before that bill passes...when over 50% of outstanding Federal debt is held by foreign creditors, then the rules of the game can change.

The govmint has a $7 Trillion national debt, $2 Trillion of which has been run up in the last 3 years. The govmint is running a federal deficit of over $400 billion a year. Over-spending in the United States has created a $650 billion trade deficit that threatens the value of your hard earned dollars.

Take solace in the fact that we’re not alone!!! As reported by the Financial Times, JP Morgan Chase estimates that the global government bond supply will be $2,320 billion, up 66 percent from 2001! Just keep the presses rolling baby...

See Archives: Mortgage Debt

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