$1.9 Trillion In Renovations To The GSE-Bloated US Debt Ceiling On Deck
You didn't think all those massive stock market gains would come free of charge? The cost: about $1.9 trillion in new debt allowance according to Steny Hoyer, almost $500 billion higher than previous estimates by Senate Budget Committee Chairman Kent Conrad. It took a mere 4 days for Conrad's optimistic estimate of the future cost of today's carefree living to go up by 30%. And who will bear the brunt of this ludicrous leverage: the U.S. soldier. Dow Jones reports that the debt ceiling increase provision will be added to legislation setting forth the Pentagon's budget for 2010. "It is unconscionable for the Democratic majority to pile the debt limit increase on the backs of the American soldier." In ironic retrospect, it will not be so "unconscionable" when the same soldier is sent for some preliminary diligence work west of the Pacific, just in case America's partner in the most crucial prisoners' dilemma game of all time, China, decides to finally defect, and tell the Fed it can monetize its own debt without Beijing's cooption. But that's a topic for late 2010/early 2011.
More from Dow Jones:
According to Treasury estimates, the current debt ceiling is expected to be reached soon. The federal budget deficit in fiscal 2009 was $1.4 trillion and, through the first two months of this year, is on course to be even higher.
According to the figure made public by Majority Leader Steny Hoyer (D., Md.) Friday, the move would hike the government's ability to borrow to between $13.9 trillion to $14 trillion.
Increasing the debt ceiling itself is largely symbolic as the public debt is the accumulation of past deficits, or money already spent.
But were the U.S. to breach its debt limit, it would default on its obligations, potentially lose its prized top-shelf credit rating and have to pay significantly higher interest to its creditors. Such a scenario, albeit an extremely unlikely one, would have tremendous ramifications for the wider financial markets.
And just to make it very clear who is betting the house that China will forever keep buying US Bills at 0% in perpertuity (good luck with the 30 Years), "Reps. Steve Scalise (R., La.) and Kevin Brady (R., Texas) introduced legislation Friday that would require a stand-alone vote on any incrase in the debt ceiling."
The bill would require a House vote of a two-thirds majority in to hike the debt ceiling. While it is almost certain not to become law given the size of the Democratic majority in the House, it is the latest salvo from Republicans who are hoping to tap into growing public angst about the state of the country's finances.
As of last count, the total debt outstanding was at $12.08 trillion (with a marginal cushion as Marla had disclosed previously). Yet with the two most recent Treasury auctions still to close, keep a close eye on this number. The Treasury Secretary and the Senate are both playing far too close to the vest with something which, even if a pure technicality, will force the rating agencies to find the US in default, as much as they would hate to do so.