Three Horrifying Facts About the US Debt Situation By Graham Summers
| Oct 13 2010 10:48AM
Since too often financial articles consist
of some stooge blathering on and on with opinions instead
of facts, I thought today we’d simply focus on some
FACTS about our current financial system which few if any
want to acknowledge.
#1: The US Fed is now the second
largest owner of US Treasuries.
That’s right, this week we overtook
Japan, leaving China as the only country with greater ownership
of US Debt. And we’re printing money to buy it. Setting
aside the fact that this is abject lunacy, this policy is
trashing our currency which has fallen 13% since June…
as in four months ago. Want an explanation for why stocks,
commodities, and Gold are exploding higher? Here it is.
#2: “There are only about
$550 billion of Treasuries outstanding with a remaining
maturity of greater than 10 years.”
This horrifying fact comes courtesy of Morgan
Stanley analyst David Greenlaw. And it confirms what I’ve
been saying since the end of 2009, that the US has entered
a debt spiral: a time in which fewer and fewer investors
are willing to lend to us for any long period of time…
at the exact same time that we must roll over trillions
in old debt and issue an additional $100-150 billion in
NEW debt per month in order to finance our massive deficit.
And only $550 billion of the debt we’ve
got to roll over has a maturity greater than 10 years!?!?
So we’re talking about TRILLIONS
of old debt coming due in the next decade. The below chart
depicting the debt coming due between 2009 and 2039 comes
courtesy of the US Treasury itself. In plain terms, we’ve
got some much debt that needs to be rolled over that you
can’t even fit it on one page and still read it.
#3: The US will Default on its Debt
… either that or experience hyperinflation.
There is simply no other option. We can NEVER pay off our
debts. If we include unfunded liabilities, every US family
would have to pay $31,000 a year for 75 years for us to
get debt free.
Bear in mind, I’m completely ignoring
the debt we took on with the nationalization of Fannie and
Freddie, AIG, and the slew of other garbage we nationalized
or shifted onto the Fed’s balance sheet. And yet we’re
STILL talking about every US family making $31,000 in debt
payments per year for 75 years to pay off our national debt.
Obviously that ain’t going to happen.
So default is in the cards. Either that
or hyperinflation (which occurs when investors flee a currency).
Either of these will be massively US Dollar negative and
horrible for the quality of life in the US. But they’re
our only options, so get ready.
I’ve said it before and I’ll
say it again… the US economy today is not about a
recession or a housing bust… it’s about an Empire
in DECLINE.
We’ve got all the tell-tale signs:
we’re engaged in endless foreign military excursions
that bring nothing to the country, we’re depreciating
our currency at a rapid rate, we’re trashing the national
balance sheet and falling further and further into debt.
Indeed, the US was already bordering on
bankruptcy BEFORE the Financial Crisis began. And SINCE
the Crisis began the “powers that be” have implemented
a ton of emergency measures, NOT ONE of which has been positive
for the US Dollar OR the US balance sheet.
At some point, and I cannot tell you when,
the US is going to find itself facing a situation very similar
to that of Greece. Indeed, if Greece’s numbers are
“Crisis Worthy” investors should consider that
the US’s fiscal condition is in fact AS BAD IF NOT
WORSE than Greece’s.
The US is expected to run a $1.7 trillion
deficit in 2010. Assuming that the GDP numbers are accurate
(they’re not, but that’s an article for another
time), the US economy is in the ballpark of $14 trillion.
This means we’re running a deficit equal to 12.3%
of GDP. That’s RIGHT next to Greece.
Then of course, you’ve got our Debt-to-GDP
ratio. If you ignore unfunded liabilities like Social Security
and Medicare, the US already has a Debt-to-GDP ratio of
98.1%. That’s only slightly off of Greece’s
Debt-to-GDP of 112%.
Throw in Fannie and Freddie’s mortgage
debts (Uncle Sam own $5 trillion of these now too), and
we’re already well over a Debt to GDP of 112% (actually
it’s 130% or so). And when you include Social Security
and Medicare ($45 trillion) this puts total US Debt-to-GDP
at 421% ($59 trillion of Debt on a GDP of $14 trillion).
Those investors who believe the US is somehow
immune to a debt collapse are in for a VERY rude surprise.
If you’re looking for an explanation of why Gold,
the only currency that CAN’T be devalued is exploding
higher, you’ve got it.