$253,000 a Second

That’s how much U.S. deficit debt is traded every second of every day. We were projecting a going forward (additional!), 10-year-projected deficit at $7.1+ trillion… but the Obama administration, noting that the economy was far worse than expected, has revised that number to be a whopping $9 trillion. But the government is a full-time participant in the borrowing business… it’s not like we only borrow the amounts we add to the deficit every quarter; old debt comes due and needs to be replaced with new offerings. $8 trillion worth of deal-making a year! And when there are no takers at what the Department of the Treasury believes is a viable interest rate, the Federal Reserve steps in to make a purchase until the markets correct. Some people compare the Fed’s purchase of U.S. Treasuries as the equivalent of “printing money” (since they increase the money supply to pay for the purchase), an inflation/dollar devaluing event they feel.

The Obama administration has told us to expect a $1.58 trillion annual deficit “peak” over the next year, tens of billions over the original estimates. Big numbers, but what does it all mean? To get an idea of how much we borrow, not just in the trillions of dollars, but as a fraction of what we make (the gross domestic product), for the past 50 years, we’ve borrowed 50% of our GDP, but with the recent stimulus package and expanding deficit, that number stands at 60%, and it seems destined to rise.

The August 25^th New York Times: “The government’s total debt would roughly triple by 2019 to $17.5 trillion under the new estimate, almost $2 trillion more than the White House estimated in May. Measured as a share of the nation’s economic output, public debt would hit 76.5 percent of gross domestic product by 2019 — by far the highest percentage in the past hal f-century — from about 56 percent this fiscal year. This year will be the first time the number has exceeded 50 percent since World War II. The previous estimate was about 67 percent.” These debt levels are unique for a time that does not carry a WWII level of global military conflict. Even forgetting about the cost of the stimulus package, you can pretty much figure that the entire Iraq-Afghanistan conflicts have been waged with borrowed cash.

Many are asking if we can afford healthcare reform in this environment. The demise of GM and Chrysler under the weight of their union-negotiated benefits package (with huge healthcare costs) and the not-so-hidden cost of 47 uninsured Americans suggests that 16% of our GDP currently spent on healthcare is going to get paid no matter what. Reallocating where the money goes and increasing in efficiency may ultimately stabilize this “out of cost control” sector of our economy, a reality we would have to face sooner or later anyway. But in light of the numbers above, it is a profoundly painful process.

We are constantly “borrowing money” in the form of public auctions, where buyers range from private institutional investors and micro-saver retirees to the Peoples Republic of China. Because we are selling so much of our debt, we’ve accelerated that auction process. The August 24^th New York Times: “In February, the Treasury announced it was bringing back the seven-year note, for the first time since 1993, and it doubled the number of 30-year bond auctions, to eight a year. Just three months later, it announced a further increase in the frequency of 30-year bond auctions, to 12 a year.” The a mount for sale at each of these auctions is expected to rise as our thirst for borrowing increases.

Common sense tells you that this cannot continue forever, although it seemingly has. In March, China’s finance minister expressed concern as to this rising level of debt, a suggestion that was taken by many that China may reduce or stop is purchase of U.S. governmental securities at some time in the near future, this despite the fact that we are still her greatest trading partner (okay, we import vastly more from China that we could ever export). European nations also have expressed serious concern over America’s mounting deficits and concomitant debt. Long-term forecasters are predicting that the dollar will eventually fall significantly by reason of all this borrowing.

Still, the U.S. remains pretty successful finding buyers for its debt. The Times: “Federal officials have been pleasantly surprised to see the demand for Treasury securities keep pace with the growing supply. Invariably, they get ‘coverage,’ meaning that the bids exceed the amount of securities being offered — a great relief to federal money managers. When the government auctioned $32 billion of four-week Treasury bills [in the week of August 17^th], the bids totaled $114 billion.”

This heavy debt is a continuing drain on our annual budget, since debt service is part of our carry. It is a mortgage of our future, but as many argue, we wouldn’t have much of a future without these borrowings in the first place. Many seasoned economists also warn that cu tting off the stimulus package too early would render what we have spent to date a waste and cascade our economy into a true full-on depression. No really good choices. Smaller nations don’t have the same military costs we do and most certainly have lower levels of bureaucratic costs and infrastructure requirements. There are costs simply associated with being a global power, as China is rapidly discovering. But we most certainly have been living well beyond our means for some time now, and most government leaders agree that slowing, stopped and even reversing the growth of our national debt is a mandate for the not-too-distant future.

I’m Peter Dekom, and I approve this message.