Market alarm as US fails to control biggest debt in history

[Donnachaidh]

http://www.telegraph.co.uk/finance/comment/liamhalligan/8196283/Market-alarm-as-US-fails-to-control-biggest-debt-in-history.html

US Treasuries last week suffered their biggest two-day sell-off since the collapse of Lehman Brothers in September 2008. The borrowing costs of the government of the world’s largest economy have now risen by a quarter over the past four weeks.

Such a sharp rise in US benchmark market interest rates matters a lot – and it matters way beyond America. The US government is now servicing $13.8 trillion (£8.7 trilion) in declared liabilities – making it, by a long way, the world’s largest debtor. Around $414bn of US taxpayers’ money went on sovereign interest payments last year – around 4.5 times the budget of America’s Department of Education.

Debt service costs have reached such astronomical levels even though, over the past year and more, yields have been kept historically and artificially low by “quantitative easing (QE)” – in other words, Federal Reserve Chairman Ben Bernanke’s virtual printing press. Now borrowing costs are 28pc higher than a month ago, with the 10-year Treasury yield reaching 3.33pc last week, an already eye-watering debt service burden can only go up.

Few on this side of the Atlantic should feel smug. The eurozone’s ongoing sovereign debt debacle has pushed up Germany’s borrowing costs by 27pc over the last month – to 3.03pc. The market has judged that if Europe’s Teutonic powerhouse wants the single currency to survive, it will ultimately need to raise wads of cash to absorb the mess caused by other member states’ fiscal incontinence.

More at the link --

[ladjf]

1. Yes, This debt situation is the "canary in the coal mine" test for

our economy. It gives us a clear idea what the rest of the world thinks about our political shenanigans. This may be the only factor that has a chance to slow the greedy and crazy rich people in America down. That would be ironic.

[Ichingcarpenter]

7. Debt situation is and

shall be owned by the BANKSTER and not the people


When you get to that point you get it.

[nc4bo]

2. More tax cuts please. Mmm, mmmmgood.

[SpiralHawk]

3. "More more more more more tax cuts for fatcat republicons." - Rush DraftDodger Limbaugh (R)

[MadHound]

4. And sometime within the first three months of next year,

The 'Pugs will start making noises about reducing the debt, pointing to these figures, and propose massive spending cuts. Obama will come up with a "compromise" based on the Catfood Commission report, and we can kiss SS, Medicare, and other programs that help the poor and middle class good bye.

That's one of the reasons it was so important that Obama not cave on this issue, but apparently caving is all he knows.

[Ghost Dog]

5. Or sooner, by the sounds of it.

Slightly more from a longer article, and this is the essence:

Some say that growing signs of a US economic recovery are positive for stocks, which means money is being diverted out of Treasuries, so lowering their price, which pushes up yields. That’s wishful thinking. Sovereign borrowing costs have just surged in the US – and therefore elsewhere – because a politically-wounded President Obama caved-in and extended the Bush-era tax cuts, combining them with a $120bn payroll tax holiday.

Lower taxes, and the certainty of lower taxes, may bolster business investment and growth. That’s the logic employed by those painting last week’s global yield spike in a positive light. Government borrowing costs rose in America and elsewhere, they say, as a re-bounding US economy is now drawing investors’ cash away from sovereign bonds and towards more productive uses.

The reality is, though, that the market is increasingly alarmed at the rate of increase of the US government’s already massive liabilities. America’s government debt is set to expand by a jaw-dropping 42pc over the next few years, reaching $19.6 trillion by 2015 according to Treasury Department estimates presented (amid very little fanfare) to Congress back in June. Since then, government spending has risen even more. So US debt service costs, like those of many other Western nations, are expanding rapidly in terms of both the volumes of sovereign instruments outstanding, and the yields on each bond.

The new worry in the market is that this latest round of tax cuts could add another $1 trillion to the US deficit, on top of the already horrendous numbers produced in June. With opinion now deeply split about the wisdom of yet another round of QE, bond investors are getting increasingly worried that the Fed will turn off the funny-money and the sugar-rush will fade. Meanwhile, the US has very few plans – and none of them remotely credible – to get to grips with the biggest debt in history.

America has lately been very happy for small eurozone members to endure most of the adverse publicity related to the sovereign bond crisis. But, as of last week, the Western government debt debacle has entered the big league. We’re going to hear a lot more about the US government’s borrowing costs over the coming months – and the related “contagion” of other countries’ treasury bills, as America’s funding issues focus attention on the scale and ratcheting interest costs of sovereign debts in other large economies too.

[MadHound]

8. Yep, there are other signs that we're going to hit the wall soon

About a month ago, China and Russia agreed to conduct bilateral trade deals using their own currencies, not the dollar.

Further, more and more of the oil trade is being conducted using a basketful of currencies, not the petrodollar. That is part of the reason why our gas and oil prices are going up.

We are pushing the limit on our debt, perhaps just pushed past it. When the rest of the world decides that they don't want to fund that debt, or buy that debt, we are so screwed. I think that decision is coming very, very soon.

[fascisthunter]

6. give the rich money the government doesn't have

yeah... that'll work, even though it hasn't worked for almost decade. Fucking liars...