Putting It All In Perspective: Bernanke Does More For The Budget In 15 Minutes Than The Government Does In A Year

Tyler Durden's picture

From Peter Tchir, TF Market Advisors

Bernanke Does More For The Budget In 15 Minutes Than The Government Does In A Year

Now that we are being inundated by reports telling us how the government has saved us and reached an historic $38 billion of cuts, it's time to put the result in perspective.  This was 'Winning' only in a way that Charlie Sheen could understand.  The government would have shut down if a solution wasn't reached.  It's not like this was done randomly - the laws of the country forced them.  It took the threat of government shut down (which some people seem to think is a bad thing) to force them to come up with $38 billion of cuts.  Even with looming shutdown, they couldn't help themselves from throwing in some riders.  Although, even the riders were less odious than the President trying to convince us earlier in the week that not allowing planned budget increases actually counted as budget cuts!  They really did try and tell us that by not going implementing planned spending increases, they were actually saving money.  Say what?  Maybe that logic applies to Saks' shoe sales, but in the real world, that is not a cut, nor is it savings.

Anyways, it seems pretty clear that in spite of potential government shutdown, threat of public backlash, our government could barely get its act together to cut $38 billion.  Yet with $14.3 trillion of debt outstanding, an increase of 0.25% would add $36 billion to our deficit!  Mr. Bernanke, who claimed on 60 minutes, that he can squash inflation within 15 minutes has relatively few policy tools to do that.  Pretty much only raising rates or stopping QE2.  Raising rates is the simplest, but if a 0.25% rate increase (minimum the Fed has ever done) adds $36 billion to the deficit, will he, or anyone else have the stomach to deal with the consequences?

Just think how hard it was for the government to reach an agreement on $38 billion.  That agreement was only reached to avoid the imminent shutdown that both parties decided they would face negative consequences from the voters for. 

Should one man have this much power?  It wasn't as much of an issue in the past, but as our debt has grown out of control, it's a real issue now.  You can argue that with a steep curve maybe you wouldn't get a 0.25% cost increase across the board if the fed raised short term rates.  You can argue that at least a trillion is held by the Fed so it's a wash (but then why does it count in the debt limit in the first place).  On the other hand, you could argue that we should have the same rate as the ECB since allegedly our economy is in better shape than Europe.  That would be a 1% increase.  If you believe that QE2 has held down borrowing costs out the curve, than merely stopping that could add to our cost. 

We are at historically low rates, yet the bulk of our debt remains funded relatively short term.  So far I haven't seen a single budget proposal that shows a significant decrease in debt outstanding over the next 10 years. Shouldn't we borrow out to maturities that reasonably reflect when we can pay back the debt?  By funding so much 5 years and in, we save a meaningful amount of current interest expense, but expose ourselves to rate shocks in the future.  ARM's killed homeowners who weren't prepared.  Too much short term debt helped kill Greece and is killing Portugal.  Yes they have spending problems, but had they locked in low rates for a long time they wouldn't face the same degree of current pressure.  If we know we won't be repaying debt for 10 years, we should borrow more out to 10 years.  The cost would be shocking.  Maybe even prohibitive.  But that is what we need!  That cost is real.  Maybe if we funded all to 10 years, government would become horrified at the cost and really start to cut the budget.   At least Ben isn't responsible for this fiasco.  That is Treasury.  On $10 trillion of marketable treasuries, the average rate is 2.5%.  If we pushed that funding towards 10 years, it would jump 1%.  Even at 2.5% average cost, it is much less then the 4.6% average cost we had just 5 years ago.  That would be a 2% or $280 billion shock to the system!

So, at a time where the government has demonstrated a complete lack of will over $38 billion, we are left in the hands of Ben to determine short term rates, influence the curve, and Timmy to determine what maturity profile that 'best meets our needs'.  The actions of either of these two unelected individuals could dwarf the $38 billion as every 1% of increased borrowing costs would cost $143 billion.  Since the government could barely deal with $38 billion, how will they deal with increased borrowing costs?  Does even congress know just how trivial their cuts look relative to the potential increases in debt cost?

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Long-John-Silver's picture

How I learned to stop worrying and love the debt bomb.


drbill's picture

Now all we need is to somehow figure out how to get a photo of Slim Pickens riding on debt bomb!

Urban Roman's picture

WB7's gotcha covered. It's about the 8th picture down in this article:


traderjoe's picture

Why are 'we' discussing paying back our debt at all? Why does a sovereign country borrow its own money from private corporations? Fractional reserve banks create money out of thin air and lend it to the government, earning interest in the process. It's an infinite gross margin. The Fed is a fraud. End the Fed. Www.bigeye.com/griffin.htm

stewie's picture


Trade imbalance must be reduced.  If PBOC won't let the Yuan rise, then Fed will devalue USD, till food inflation forces them to let go.  Push hard & long enough and they WILL let go.  That's the main driver of what they are doing here, and why there's no political will to do anything else than spend, spend, spend!

When the trade balande is reduced, the economy recovers, tax receipt increases and interest rates can be slowly raised.  

I'm not saying it will work, just trying to understand the plan behind the actions.  And there's not much of that around here I find.  Just a lot of hand waiving, we're all doomed,  OMG let's all hide under our golden blankie till the thunder goes away.




Deep's picture

I believe china has us by the balls, not the other way around. they could slowly start dumping UST, and it would end us. Rates would skyrocket, and then what would we do. they could inflict a lot more pain on us then we could on them. Ya, lets keep devaluing the currency and see how high oil goes and everything else. by your logic, their is no pain on us by a lower ud dollar, more pain on us then them.

stewie's picture

Yes they could call the bluff and it's M.A.D.  

But to me, it seems that food inflation is putting a much more clear & present danger on them.  

- Raising US rates -> monetization.

- Raising Chinese food price -> re-value the Yen.  

- Raising oil prices -> Bombs


See what I'm saying?  It's a big chess game being played, and to win it, you must remember the move played, as well as seeing a few moves ahead.


Vlad Tepid's picture

- Raising Chinese food price -> re-value the Yen. 

Or China could revalue the Yuan.  Either way, Stewie.

stewie's picture

lol, absolutely. Thanks for that.

Mr Anderson's picture

Why would China sell UST right now. They would get their money sure. But it would just be printed dollars from the fed. 

First QE must end.

   Then China can then start dumping treasuries which will help to end us.

   No matter how you look at it, China has a great deal of leverage over the US. If this was considered a war, which it is. We would be suing for peace.

  When the system de-leverages and the stock market collapses China is perfectly set to come in and buy up our companies at pennies on the dollar.

  The Govt wont be there for another bailout, and likely the Govt will be going down with the ship.


Reese Bobby's picture

I can handle stupid or condescending but I have no use for both.


This country has been restructured over the past 30 years to ALWAYS run a trade deficit.


The only plan in for banks to earn interest on fiat currency created with keystrokes in return for allowing politicians to spend so far above our means it is satire.


The end game is the enslavement of workers worldwide.  "I'm not saying it will work, just trying to understand the plan behind the actions."

stewie's picture

Easy buddy, I wasn't being condescending at all.  You may disagree with my analysis, but no need to call me stupid.  We're all here to share idea and learn, no?  

Why do you think the US has been restructured to run a constant trade deficit?  Because it could.  It strategically positioned itself to become the reserve currency by re-cycling petro-dollars so"deficit didn't matter anymore".  This gave the US 30 years of riding the empire wave.  Pretty sweet deal if you ask me.  

The end game is not to enslave workers worldwide, that is the current situation.  Banks already have our collective ass! What they want is to keep it.  

NidStyles's picture

Wait, you said the end game is not to enslave workers, but then went on to qualify this said enslavement by stating they already had us. Which is it?

stewie's picture

Poor choice of words I guess.  You don't need an End Game when your goal has already been achieved.  You only need to preserve your power over others.

Reese Bobby's picture

I am not your "buddy" and I fear there is little I can "learn" from you, in contrast to so many others at ZH that you dismiss. 


"And there's not much of that around here I find.  Just a lot of hand waiving, we're all doomed,  OMG let's all hide under our golden blankie till the thunder goes away."  That is the definition of condescending, pal.


Now you can go ahead and think a stronger Yuan would be a positive if it makes you happy. But I don't believe it would help our 70% service based economy.  I think it would worsen another inflationary force that should pressure U.S. interest rates higher; China is our largest supplier of consumer goods. 


To blame our problems on the PBOC is popular because it is diversionary to the real problem: the willful destruction of this Country by the banks that control it.


stewie's picture

You know sometimes I wonder why I bother.  I don't know you, so no, you're not my "buddy".  This is how ppl write to appease a overly confronting person.  Too bad I had to explain this, but I suspect you're very young and still learning the basics of human communication.  BTW, NOW I'm being condescending.

The service economy of the US cannot survive indefinitely producing nohting but freshly printed FRNs.  That's why a stronger Yuan is required.  The US must produce stuff and sell it to somebody else.  You've been living the dream too long you must have forgotten this little rule.  Why do you think everybody is calling on China to re-value? Honestly, why?

If anything, please take the following away from this little verbal altercation:  Masters need healthy slaves to work fom them.  They don't want to destroy them, they want to control them.  Banks don't want to destroy the US, or any country, because without minions, they're nothing.  The healthier the economy, the more they profit from the free nectar or usury. 



Deep's picture

what i dont understand is how is a higher yuan going to help us. Yes i get you logic, trade imbalances will be on the righ track, then china will not have  a competitive advantage. But to say that is what will cure our ills is wrong imo. we have lived WAY behond our means. and would't a stronger yuan make the chinese even stronger? what am i missing stewie?

stewie's picture

The US and China are involved in a sort of economic symbiotic relation.  Oneof the reason China has avoided problems typically present in emerging markets is that it has financed it's booming development largely with it's own savings, as opposed to other emerging markets that relied on rich western nations' investments.  By doing this, it avoided the pitfall of investors pulling money out of the systems when they see fit, collapsing the economy.  With it's hight saving rate, it quickly become a creditor nation, specially to the US.  It did that for two reasons:  1- Vendor Financing and 2-Keep Yuan low.  It's easy to see this since they have been buying US debt hands over fists for decades.  This process has been discussed and documented to death.  Here's an example: http://www.youtube.com/watch?v=tBI6sWHkMgg

This huge amount of money comming back to the US felt pretty good, making everybody feel  rich, but debt is debt, and must be serviced.  It has proven difficult to stiffle this spending, by both private and public sector.  So the US has dug itself into a hole, too much debt that must be serviced, and interest on that debt at market price would have crushed the economy without the Fed's actions of late.  

So this is what I think happened:  The money masters came up with a plan.  Monetize a big chunk of US Debt, cutting the cost of servicing the debt, putting pressuse on the USD, causing commodity inflation, forcing the Chinese to revalue the Yuan, which would raise the price of imports to the US, which would cut the bleeding of wealth to the east.

So I think a stronger Yuan would help the US in the long by preventing China from killing it's symbiotic host.

tennisdude's picture

A stronger Yuan could potentially help us farther into the future, after a painful recession where our economy shifts drastically.  But the recession would be huge, and in the USSA we print recessions away.  We don't allow market forces to correct misallocations, we fight it tooth and nail until the imbalances kill the status quo for good.

The call for a weaker Yuan is lip service, we depend on our ability to export inflation while we monetize a level of debt that we can never pay back. This just gives Joe Public somebody to blame. The US consumer would get smacked if this scam ended.  It takes time to build a manufacturing base when it has been neglected for so long, and when untrained workers must be overpaid to fill the gap.

Reese Bobby's picture

"Why do you think everybody is calling on China to re-value? Honestly, why?"

Try reading a post you respond to.  You sound like a fool when you skip that step...

stewie's picture

Mr. Reese Bobby: It's easy not to sound like a fool when you don't say anything.  Try to come up with something smart, then I'll shut up.  Your one-liner disparaging remarks are not impressing anybody either.

Reese Bobby's picture

I am now satisfied.  I have reduced you to a typical fact-vacant, finger-pointing, liberal nit-wit.  Not much of an accomplishment given your apparent dimness, but still nice.  Thanks.

Teamtc321's picture

A must watch, China is going to extremes to keep there GNP as high as possible. They tell there population to buy silver and gold and yet there yearly income average is $6,000.00

WTF is going on in China?

Where are all the new's post on this bubble? Any help on more sound studies would be appreciated.



blunderdog's picture

I think this approach has been noted before, but the problem is that the necessary element no one wants to talk about is general equalization of standard of living in order to achieve relative international balance.

If it costs $3/day to live in China, and $24/day to live in the USA, there's no way for US labor to be "competitive" in the international labor market. 

But good luck driving the cost of living in China UP to that of the USA/Western Europe.

So the necessary step is driving the US cost of living DOWN.

Deleveraging our overinflated asset "values" could be part of the process, but because that would collapse our financial empire, which owns our political system, it will not be permitted.  So the only other approach is literally to drive the majority of the population into 3rd world living standards.  Day to day subsistence at the mercy of government largesse will keep most Americans quiet and cowed.

And what's to fight for anyway?  Who is really motivated to work in the current economic system we've created? 

It doesn't take too long in any of the big-business environments to realize that most of what constitutes material success is political acumen.  The high-earners know what to kiss and when.  Some people aren't built to do whatever it takes to chase a dollar.  In my experience, it's MOST people who don't function that way.  An intrinsic sense of worth and interest in low-cost pursuits tend to lean against the monetary incentive to whore every iota of your existence for the next pay increase.

This is why it's over.  This is why, despite the potential approach to the problem you suggest, it just doesn't fucking matter anymore.  International economics are going to change over the next decade, and neither Ben nor Obama nor Chu can do a thing about it.

Chumly's picture

De-leveraging IS a part of the process and will continue, regardless of whether it is "permitted." The wealth of the true patrician class is permanently baked into any future scenario - they don't sweat it. A million here or a billion there doesn't matter to them. It's always been "over."

The slow yin and yang of a long stagflation (deflationary inflation) will keep the powerless middle class mollified as they continue to fade into the class of peasants.

And, I agree: It doesn't matter anymore.

Alcoholic Native American's picture

Let's here it for anonymous billionaires.

Our true saviors.

Vlad Tepid's picture

And all I ever did was impale people on spikes...

chunga's picture

Is that guy flipped out or what? I think it's great. "I think we should do like they do in France...if the Bossman fucks with you kidnap the son of a bitch".

cossack55's picture

"Does even CONgress know just how....." LMFAO. Damn Tyler, you really need to take your comedy on the road. Well, maybe in a Prius.

cossack55's picture


Damn normalcy bias has me looking for the Guest Post tagline.

Oh regional Indian's picture

Un-elected is right. Chosen is more like it.

How can the government be immune from vicious debt cycles? The hack Al. Einstien got one thing right, compound interest is more powerful than god.

The numbers clearly show this is silly season now. The dollar will dip below 70 before the next weeks is out at this rate (literally).

The dollar is now radioactive.




Mr Lennon Hendrix's picture

The holding point is dxy 66.  Up until then, make sure to catch every edpisode of Danzig with the Starz.

slewie the pi-rat's picture

way to dis einstein, braniac! 

how many weeks 'is' gonna be 'out' b4 the dollar breaks 70, there, brainiac?

ok, ORI, slewie will play!  now that we are boehner-hard for the next few months of gooberminting, i say the PPT will jack the living shit outa the dollar index, next week.  they just waited on their interventions, so all could "see" how horrible the index would go south without the goobermint in charge and the PPT helping keep it all "stable".

btw, who is this killjoy who wrote this drivel, Putting it all in Perspective?  the only reason interest rates crept up, there, is b/c the PPT decided to chill, for political reasons. 

slewie sez big $$$ rally ahead.  fade that ORI!  lol!  go ahead!  my record speaks for itself.  well, whispers?  ok, i'm usually totally wrong.  but not this time!  a little reverse reflation for a few days, and the nation may last another whole year!  who knows? 

godgunsandgold's picture

It's all a giant ponzi scheme, just for show, "See, we're actually getting things done on you're behalf."

How can you tell if a congressman is lying?...(wait for it)...the lips are moving.

covert's picture

it's simpler than it looks. most people always overspend. they order more service than they can pay for.



Jack Sheet's picture

some great comments from Jim Rickards (Twitter):

  • we're talking about fiscal 2011 which has a higher deficit than 2010 so in reality THERE ARE NO CUTS
  • 2010 deficit at $1.3T, & 2011(est) at $1.6T
  •  2010 outlays at $3.5 T, & 2011 (est) outlays at $3.8 T
  • These "cuts" are from auto-increases
  •  "We're spending more but not AS MUCH MORE as we threatened" moment? Only inside beltway is that a cut
Rainman's picture

Not that I needed more convincing, but this budgeting debacle brought it all home. The government has built an ark for its employees and its thousands of sacred cows. They don't care if the mothership sinks with all the elders, women and children aboard. A catastrophic event will be required to swamp the ark and drown those on board.

cossack55's picture

That event may be closer than anyone thinks.  Have you noticed milk prices lately? Been following the stories of radioactive milk above EPA rules in WA, AZ, VT, CA?  Soon you will be able to mow the lawn at night.

Oh regional Indian's picture

Yer gonna moe that curly grass larry? Seriously, isn't this farce going in the direction of the 3 s's? 

Somewhere between radioactive milk and radiant spinach, there is both a truth and a lie. All of these readings are by givernment agencies right? Control money, control government, control food, control the people...not sure who said that, but someone wise in the ways of the world.

I'm sure geiger conters are also government approved, right? 

Such a time that at every turn we have to ask of ourselves... Cui Bono?

Who to trust? 



Misean's picture

If they financed all $14T in like 3-day paper, that would save a bunch o' cash until Tuesday...

stewie's picture

Sure let's go there...

Bring HFT to bond market and finance everything in sub-second debt @ .000000000000001%. 



Bastiat's picture

This is exactly why Ben cannot raise rates: it will slow "growth" and fed revenue and raise interest expense both increasing the deficit and the need for more borrowing --  death spiral to economic and currency collapse.  Got gold?  Alternative is continue to print and directly suppress rates -- inflation, currency collapse.  Got gold?

Mr Lennon Hendrix's picture

Thought experiment:  POMO monetizes $36 billion in 15 minutes.  If the government needed to save $36 billion would not running a POMO auction do the work?  Or is POMO actually "creating" or rather freeing up $36 billion for the government?  Or, is it doing both, spending one side of the ledger, and freeing up the other.  Is Bernanke a genius majician, or a belligerent alchemist?

The gun isn't in your hand...the gun is in my hand.

tony bonn's picture

congress doesn't know or care how trivial their 38b is.... 38/3820 is how much? or for you congressmen, 38/1650...

the deficits are to take from the poor and give to the rich plutocrats and kleptocrats....we have to fight 3 wars dontcha know...

1.7 trillion usd in deficits is going where?? and 3820b in spending doesn't even begin to tell the trouble with the fisc....any business which kept books like the government would be locked up in a cell next to those mint silver coins....