U.S. In Technical Default?

Last week the U.S. government’s debt exceeded the debt ceiling of $8.18 trillion, passing $8.19 trillion as of Thursday, putting the government in technical default. Put in simple terms you and I can understand, the government went over its limit.

The statutory debt ceiling is the maximum amount that the U.S. government can by law borrow in order to pay ongoing expenses.

In mid-December, the Fed lowered its key rates, putting downward pressure on the U.S. dollar and raising the specter of high inflation. However, sensing the possible sale of long-dated Treasuries, Fed chairman Bernanke took the unusual step of assuring investors that the Fed was likely to buy large amounts of long-dated Treasuries. This caused renewed investor faith in long Treasuries. With Treasury demand thus stimulated, I do not expect a near term rally in corporate debt instruments.

The longer view however is much different. As Fed Chairman Bernanke beckons investors towards long-dated Treasuries, the danger on the rocks is being consistently ignored.

And although these bonds may indeed remain strong for now, it is likely that the revered U.S. Treasury market is becoming the next asset bubble ripe for explosion. Such a dramatic development could be caused by a number of fundamental reasons.

First, as the recession deepens, it will become apparent to all that the Fed has no will to fight inflation. Worse still, it will likely be seen that the U.S. Administration is diverting its vast resources away from restructuring and infrastructure spending towards the potentially inflationary, socialist-style prevention of restructuring through the subsidization of clinically dead companies, like the U.S. auto industry.

Second, the Government can be expected to issue vast amounts of additional long-term debt. Third, foreign central banks will be forced to spend internally on their own domestic stimulus packages. These major investors, especially China, will buy progressively less U.S. Treasuries and may even become major net sellers, driving prices down.

Finally, if America loses its prestigious triple-A credit rating, the prices of its Treasury bonds will plummet

Originally posted by RolandBrichter
Checking numbers......

This Charade will continue only as long as Japan and China allow it to...

It is really only a matter of time before the credit rating of USA is lowered..

[edit on 6-1-2009 by RolandBrichter]

Second, the Government can be expected to issue vast amounts of additional long-term debt. Third, foreign central banks will be forced to spend internally on their own domestic stimulus packages. These major investors, especially China, will buy progressively less U.S. Treasuries and may even become major net sellers, driving prices down.

The thing is why should the largest bestest economy in the world need a deficit? Deficits are for times of emergency, not everyday practice.

...the U.S. Administration is diverting its vast resources away from restructuring and infrastructure spending towards the potentially inflationary, socialist-style prevention of restructuring through the subsidization of clinically dead companies, like the U.S. auto industry.