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$3.5T: Amount Treasury must refinance in next 12 months

Run on the U.S. Dollar ....Soon
Currencies / US Dollar Nov 30, 2009 - 04:33 PM
By: DailyWealth

Best Financial Markets Analysis ArticlePorter Stansberry writes: It's one of those numbers that's so unbelievable you have to actually think about it for a while...

Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.

Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss."

What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt... at ever shorter durations... at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

When governments go bankrupt, it's called a "default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule.



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meekandmild's picture

let's start by cutting congress' pay by 50%

and reduce their office budgets by 50% too.

SteveMT's picture

meek: They instead get a 2% pay raise!...per Obama

Will Congress get the same raise or even more?

Obama: 2010 Pay Raise 2 Percent
By Brittany Ballenstedt 12/01/09 12:45 am ET

President Obama on Monday reiterated that he will limit the across-the board pay increase for federal employees to 2 percent in 2010.

Obama originally issued the 2 percent recommendation in August. Under federal law, the president has until the end of November to propose an alternative to pay levels set under procedures laid out in the 1990 Federal Employees Pay Comparability Act. Under that law, employees would be due a 2.4 percent base pay raise in 2010, plus locality pay increases averaging 16.5 percent. That total pay increase would cost about $22.6 billion in fiscal 2010 alone, Obama wrote.

The president has cited a national emergency since Sept. 11, 2001, as well as the sluggish economy and high unemployment as his basis for overriding FEPCA and proposing the lower-than-average 2 percent figure.

"As I said in August, I do not believe this decision will materially affect our ability to continue to attract and retain a quality federal workforce,"