Debt Ceiling

There is no stopping the debt juggernaut: according to Dow Jones the stop-gap increase to the debt ceiling which pushed it to $12.4 trillion from $12.1 Tr, will last only through March. And even if Democrats pass their much maligned $1.9 trillion hike in the total debt to $14.3 trillion, it would only last through early 2011. There is no politically correct way to describe the shitshow America's economy has become. And as an indication of the panic gripping the political system, the Treasury has asked Primary Dealers to comment on the impact that the end of MBS purchase program will have in March. We can't wait to find out what they have to say.

Well, if yesterday did not seal the Democrats' fate ahead of the mid-term election, this proposal, if passed, certainly should.

Update from reader Steak (via Politico): President Barack Obama is expected to appoint a special deficit reduction commission as part of a tentative agreement between Democrats and the White House—each trying to find the votes to raise the federal debt ceiling in the coming weeks.

Tim Geithner and Ben Bernanke can both sleep well - the Great American Ponzi ("GAP") can continue for at least one more month, courtesy of Senate Democrats who all, with the exception of Evan Bayh, voted to raise the debt ceiling by $290 billion to $12.4 trillion. 59 Democrats all did their job in pretending that an exploding budget deficit is nothing to write home about, as there is this thing "called the printing press" yet with 60 votes needed America could have been on the verge of its first ever technical default. The savior: Republican George Voinovich of Ohio, who voted against party lines, and 39 other Republicans, and voted "for" unlimited printer cartridges.

House lawmakers voted by a razor thing margin of 218-214 to pass the borrowing increase. Not a single Republican lawmaker voted to support the hike. They argued that increasing the debt ceiling was giving the Democratic majority and the Obama administration a license to spend more money.

Developing story and developing sovereign debt collapse.

In a poll on Fox News, with over 163 thousand people voting, the vast, vast majority, or 99% of poll respondents are against raising the debt ceiling, claiming "This out-of-control spending is outrageous and irresponsible." (at least Obama will get time to sneak in another 50-60 stimulus bills before China says "no mas"). We are not sure just how scientific this sampling is, but we would give it the benefit of the doubt with these kinds of numbers. Remember - the Senate is about to raise the debt ceiling from $12.1 trillion to something like $14 trillion. This means that the Senate is about to go against the wishes of 99% of America. How the Administration hopes to moderate the unprecedented political fallout that is sure to follow such an action is far beyond our meager analytical skills.

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.

The US Treasury today announced a preliminary estimate of borrowing needs in the Q4 2009 and Q1 2010 quarters. The October-December borrowing need has been revised lower to $276 billion from the $485 billion announced in July 2009. The primary reason for the decline, aside from the need to stay below the $12.1 trillion debt ceiling which would have already been breached had this number been in line with prior expectations, is due to the $185 billion refunded from the Supplementary Financing Program announced earlier, which as of October 28 has been completed. Yet, like everything else with the current administration, current peace of mind comes at a magnified future cost: the US Treasury now expected to issue $478 billion in Treasurys in Q1, and coupled with a net cash decline of $40 billion from Q4, implies that in Q1 2010 over half a trillion in debt will be issued net, if not more.

The Treasury has released the line up of Treasury issuance for next week and it is a stunner: in the week of October 26th alone, the US will issue $116 billion in new Treasury Notes (2,5 and 7 Years), another $30 billion in Bills and $7 billion in TIPS. As pointed out earlier, there is about $150 billion in availability before the Federal debt ceiling is breached ($12.1 trillion). This likely means that Geithner will have to resort to some last minute tricks to make this full upcoming issuance legally permitted.

Even as the FDIC is scrambling to find ways to replenish the practically empty Deposit Insurance Fund, one of its options, namely borrowing from the Treasury, may be a non-starter due to the egregious monetization by its counterparty, the Federal Reserve, as both run up against the Federal debt ceiling.

Too bad the Fed's PR person can not disclose just how effective it has been in orchestrating a virtually straight line move in the market over the past two weeks. Zero Hedge sympathizes, and as debt ceiling deliberations are coming up, the Fed needs every favorable media mention of the deadly precision it has exhibited in enhancing consumer confidence, raising 401(k) book profits, and singlehandedly allowing corporate insider selling to outpace buying by a factor of well over 30x. After all with the dollar's value soon hitting zero, the Chairman is doing the middle class a favor by transferring its funds out of its pocket into that of multi-millionaires: call is dress rehearsal for the barter system.

Join us in this petition to prevent the debt ceiling from being raised... and again... and again... until such time as it is merely a joke of a formality (if we are not too late), and the US descends ever faster on its way to sovereign insolvency and its new status as a Chinese vassal state.