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The Republican Deficit
If you want to delve into the case against the future of US Treasury bonds in all its glory, take a look at the November/December issue of Foreign Affairs, the establishment bimonthly journal read by academics, intelligence agencies, and politicians alike, which I am sure you all have sitting on your nightstands. In a well-researched and thought out article penned by Roger C. Altman and Richard N. Haass, the road to ruin ahead of us is clearly laid out.
The US has no history of excessive debt, except during WWII, when it briefly exceeded 100% of GDP. That abruptly changed in 2001, when George W. Bush took office, despite his loss of the popular vote. In short order, the new president implemented massive tax cuts, provided expanded Medicare benefits for seniors, and launched two wars, causing budgets deficits to explode at the fastest rate in history. To accomplish this, strict “pay as you go” rules enforced by the previous Clinton administration were scrapped. The net net was to double the national debt to $10.5 trillion in a mere eight years.
Another $2.5 trillion in Keynesian reflationary deficit spending by president Obama since then has taken matters from bad to worse. The Congressional Budget Office is now forecasting that, with the current spending trajectory and the new tax compromise, total debt will reach $23 trillion by 2020, or some 160% of today’s GDP, 1.6 times the WWII peak.
By then, the Treasury will have to pay a staggering $5 trillion a year just to roll over maturing debt. What’s more, these figures greatly understate the severity of the problem. They do not include another $9 trillion in debts guaranteed by the federal government, such as bonds issued by home mortgage providers, Fannie Mae and Freddie Mac. State and local governments owe another $3 trillion. Double interest rates, a certainty if the current commodity price inflation continues, and our debt service burden doubles as well.
It is unlikely that the warring parties in Congress will kiss and make up anytime soon. It is therefore likely that the capital markets will emerge as the sole source of any fiscal discipline, with the return of the “bond vigilantes.” They have already made their predatory presence known in the profligate nations of Europe, and they are expected to arrive here imminently. Such forces have not been at play in Washington since the early 1980’s, when bond yields reached 13%, and homeowners paid 18% for mortgages. Since foreign investors hold 50% of our debt, policy responses will not be dictated by the US, but by the Mandarins in Beijing and Tokyo. They could enforce a cut back in defense spending from the current annual $700 billion. They might even demand a retreat from our $150 billion a year commitments in Iraq and Afghanistan.
Personally, I think the US will never recover from the debt explosions engineered by Bush and by “deficits don’t count” vice president Chaney. The outcome has been permanently lowered standards of living for middle class Americans and reduced influence on the global stage. But I’m not going to get mad, I’m going to get even. I am going to make a killing profiting from the coming collapse of the US Treasury market through buying the leveraged short Treasury bond ETF, the (TBT). Sure the 40% gain since august has been nice, but it is only the appetizer. My recently joined “Macro Millionaires” have been able to book a quick 20% profit. The main course has yet to come. I am sticking to my long term forecast for this fund of $200, and that is despite a hefty and rising cost of carry of nearly 1% a month.
Of the current $13 trillion the US government owes the world, roughly 70% was run up by Republican administrations. Do you believe that the Democrats are the big spenders? Think again. The numbers from the Treasury Department tell a completely different story.
Ronald Reagan engineered the first deficit surge, taking the country’s IOU’s from $1 trillion to $4 trillion through a massive expansion of military spending and big tax cuts. This gap was primarily financed with borrowing from then wealthy Japan. That debt has never been paid off, just rolled over, and still sits with us today.
Bill Clinton presided over a mere $1 trillion in growth of the debt over eight years, enforcing strict “pay as you go” that tied any new spending to new revenue sources. George W. Bush was the mother of all big spenders, taking the debt from $5 trillion to $10.5 trillion. Don’t blame this on our wars. The overwhelming portion of this profligate expansion came from two whopping great tax cuts that were primarily borrowed from the Chinese. President Obama has since taken it up $3.5 trillion to $14 trillion.
I bet that if someone conducted a poll asking which party was primarily responsible for running up such gargantuan numbers as these, 90% would answer that it is all the fault of Democrats. This kind of erroneous perceptions is what billions of dollars’ worth of negative advertising and fake research by politically funded “research” organizations buys you. While corporate America bitterly complains about American taxes “rates” that are the highest in the world, how many of you know that 30% of the Fortune 500 pay no taxes at all, and are a big cause of our deficit problems? I bet very few. To see how quickly our situation is worsening, please click here for a real time national debt clock at http://www.brillig.com/debt_clock/ .
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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Congress appropriates and the president spends. In the old days, the president had the "impoundment power" (google it) to simply not spend what was appropriated but that was largely neutered in 1974 as an overreaction to Watergate. Yet another way we screwed ourselves.
I'd say spending is mostly entitlements and on auto-pilot, but discretionary spending is mostly on Congress. To that end, the Pelosi Congress "appropriated" $5.34 trillion in debt from January 2007 to January 2011. $5.34 trillion out of $14 trillion. Who are the big spenders?
Like I said before, I don't think the author of this post completely understands what he is writing about.
Thanks for the clarification. I'd like to postulate that 100% of the spending was by corrupt politicians.
So much for fighting wars without asking for public sacrifice.
Of the current $13 trillion the US government owes the world, roughly 70% was run up by Republican administrations. Do you believe that the Democrats are the big spenders? Think again. The numbers from the Treasury Department tell a completely different story.
This guy doesn't understand the power of the purse in the House. Not making excuses for Bush, but the Clinton surpluses were engineered by a Republican House, which took over in 1995 after 40 years in the wilderness.
The current president is Bush on steroids. I only wish Obeyme was as prudent as a drunken sailor.
BINGO!!!
It wasn't CLINTON CHOICE.
Europe ,other than Germany is not exactly thriving by adopting US financial behavior. Still America is a beacon for economic prosperity and political freedom --ala Tunisia and UAR. Problem is banksters and politicians got ahead of themselves motivated by greed, the result of unregulated capitalism. Now we must change soon or collapse like a drunken sailor.
Most of the comments on ZH are in the finger pointing stage or "how do I make money in the chaos" mind set. Instead we should be focusing on how to put pressure on our leaders for change--soon. Iam struck how impartial commission reports are quickly disregarded and return to business as usual.
The end is near, but do not fear, for gold I did endear------nonsense, because our entire country is in arrear.
Made me laugh loudly.
They can do nothing. Certainly not stuff like that. The US is the record holder in terms of treaty breachs, this in something like 200+ years.
The rule of law, that is "everyone but me"
Demanding stuff to countries because of their debt, that is very IMF and the IMF is a world extension of the US. So...
Congress has just as much to do with the budget deficit as the President. Both parties are guilty as hell. They are all lying sacks of shit.
Market Street has indeed crossed with Bancroft Way & Hearst Avenue. You're right that our current political system is incapable of addressing these realities and would rather just smoke more hopium and chase the dragon. The metastasis of mendacity. Tragic
MHFT has always been a fraud and continues to perpetuate myths and lies. I am surprised he is a poster here. He is just another tool for the system. He also does not know that all spending must be first approved by Congress. The President submits proposals, but Congress has the final say by passing the legislation. POTUS can then sign or veto. Republicrat government of the last 50 years created the deficit, and Bush's 'publicans tossed gasoline on the fire. Barry's demons nuked the fire. Let's see if Boehnerhead does anything different. Doubtful.
Anyone with hope in Boehner need only watch the youtube video of his teary eyed plea to pass TARP.
Odd, how many wars have we had in 50yrs?, how many were started by GOP, and how many by Dems?.
(PS:to cut bushie some slack, he did have 9-11 to contend with, and a economy in the shitter afterwards).
And to cut Oscumma some slack, he did inherit the end or Iraq, and Trashcanistan.
But, did that slow the REST down?
You are right, Bush was a horrible president. I voted for him, twice and Im not afraid to say he sucked. What was the alternative--Gore, Kerry?? LOL.
Obama = Bush on steriods.
Beam.
If MFHT thinks the deficits were by the GOP, he woluld not believe what they would be if Gore had won.
Also, on the 70% bullshit, and your facts, WHO was at the controls in Congress in most of those terms.Sure wasn't the GOP.
I just saw your comment after posting mine. "Bush on steroids" is my description of Obama to anyone who will listen.
Really puts the lie to that "Change We Can Believe In" bullshit, doesn't it?
I keep on blown away with this. Even after reading about it a thousand times.
I'm European, but I must say I actually have had a hughe respect for America my hole live.
And in 10 years time, it's been crumbling like a New Yorker cookie.
You would have thought that any successful trader would know by now that R or D is a useless designation, just differently labelled tools used by, and for the Masters of the Universe, the most visible of which is the FED.
right on, right on.
http://www.usnews.com/opinion/blogs/alvin-felzenberg/2011/01/26/obamas-s...
MHFT take a koolaid break and watch this
http://www.youtube.com/watch?v=XC9rhGWJA2w
Republicans only care about deficits when they are out of power.
This post of yours won't go over well on ZH.
most ZHers dont appreciate lies, fraud and spin
Which is why intelligent people ignore your posts.
so this is where keith olberman landed
Yes, try 800% for a debt/gdp ratio, virtually all off the balance sheet and entitlements. Headed for 1000% rapidly. And if you would look outside your liberal hothouse, you would notice that high tax rates don't produce high tax collections when the suckers can escape. Greece has high tax rates, but little revenue.
Great, now we have Franken,and now Olbermann(what a fag).
But,idiots and standup comics masqerading as Statesmen, has always been the DemonCrats strong suit.
With all due respect, many are simply fatigued by who, what, when and why of the deficit and debt.
The more pertinent consideration at hand is who will now and going forward do what concerning the problem.
Hear, hear. All we need to know is whether Congress will drastically cut spending across the board to balance the books. And if you know the no politician gets elected if he promises to cut benefits...well, then yo uhave the answer to the first question.
.
We're fooked.
Agreed. Don't know why I read Mad.
Also, there's this thing called Congress.