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...The U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything....And the U.S. government would still be massively in debt....
...for more dollars to enter the system, the U.S. government has to go into more debt.
The U.S. government does not issue U.S. currency - the Federal Reserve does.
So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.
The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).
So that is how the U.S. government gets more green pieces of paper called "U.S. dollars" to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.
So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.
Whatever the size of a government's liabilities, what matters ultimately is how they compare to the resources available to service them
It's interesting to note historically countries don't collapse because of economic woes.. they collapse because the populace reaches a breaking point long before the economy reaches a breaking point.. they can erode our quality of life, inflate our currency, tax us, fine us, fee us and even beat us but eventually we tire of it before the monetary policy ends the government.
I think "they" know this, and have a contingency plan to deal with us before they deal with their inability to maintain their own monetary policies.
Many historians argue that the rapid growth of the empire over a relatively short time and the economic inflation that followed contributed substantially to the empire's decay. Due to the vast size of the empire, it required an enormous budget to maintain the infrastructure necessary for its survival, including roads (essential for communication, transportation, and the moving of armies) and aqueducts (many cities relied on the water thus provided). Moreover, the empire faced enemies on all sides due to its expansion into their territories, and huge sums of silver and gold were required to keep up its armies. To cope with both problems, the empire was forced to raise taxes frequently, and also to adulterate its coins, causing inflation to skyrocket into hyperinflation. This in turn caused major economic stresses that some historians regard as central in Rome's decline.
we spend more money policing our interest than our interest bring in revenue.
As we reported previously, the total US debt is now well above the debt ceiling. Since then the total debt number has only grown and as of yesterday was $14,320,468,555,091.68. Luckily, the legal loophole, the debt subject to the ceiling is still marginally below the $14.294 trillion cap: it was $14.268 trillion, or just $26 billion less.
So here is the math that is just a little troubling:
According to Treasury direct over the next week there will be a rather substantial net cash pay down:
* April 21: $92 billion in Bill Issuance offset by $122 billion in maturities for $30 billion in net debt reduction
* April 29: $14 billion in $14 billion TIPS issuance settles (auction today): $14 billion in net debt increase
* May 2: $99 billion of the abovementioned bonds settle (auctions next week), offset by $52.6 billion in maturities: $46.4 billion in net debt increase.
This means that over the next week there will be a total of $30.4 billion in net debt increase.
Backing up, as noted above there is $26 billion in capacity under the cap.
So..... just how does the Treasury plan to offset the $4 billion breach of the legal debt ceiling that is projected to appear on the Treasury statement as of May 2?
Next week will be interesting. Even as the Treasury is scrambling to find debt ceiling expansion options (for a complete analysis see this post from January) it has just released its most recent refunding statement, according to which it hopes to issue $72 billion in 3 Year, 10 Year and 30 Year bonds. What is interesting is that completely contrary to expectations, and to recent Treasury announcements, while the UST was expected to issue $69 billion this time around, it actually increased each issue by $1 billion. So much for that promise that the Treasury will need to borrow less. But what is worse is that there are no maturities or refunds next week, meaning the net debt increase next week will be $72 billion. This simply means that Geithner will now have to really start cutting back on all other interagency issues, and to actually start taking away from the funding of the SSTF. And the kicker: Congress is nowhere even close to start thinking about hiking the debt ceiling. While we had been expecting this to be a non-issue, it may suddenly become quite an issue, as unexpected downstream effects from the debt ceiling mitigation exercise start affecting local governments. Bottom line: the US economy now has just $30 billion in incremental debt capacity.