Ponzi:
Treasury Issues $1T in New Debt in 8 Weeks—To Pay Old Debt November 28,
2014, By Terence P. Jeffrey
The Daily
Treasury Statement that was released Wednesday afternoon as Americans were
preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been
forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just
eight weeks ago in order to raise the money to pay off Treasury securities that
were maturing and to cover new deficit spending by the government.
During those eight weeks, Treasury took in $341,591,000,000 in revenues.
That was a record for the period between Oct. 1 and Nov. 25. But that record
$341,591,000,000 in revenues was not enough to finance ongoing government
spending let alone pay off old debt that matured.
The Treasury
also drew down its cash balance by $45.057 billion during the period, starting
with $126,568,000,000 in cash and ending with $81,511,000,000.
The only way
the Treasury could handle the $942,103,000,000 in old debt that matured during
the period plus finance the new deficit spending the government engaged in was
to roll over the old debt into new debt and issue enough additional new debt to
cover the new deficit spending.
This mode of
financing the federal government resembles what the Securities and Exchange
Commission calls a Ponzi scheme. “A Ponzi scheme," says the Securities and Exchange
Commission, “is an
investment fraud that involves the payment of purported returns to existing
investors from funds contributed by new investors,” says the Securities and
Exchange Commission.
“With little or
no legitimate earnings, the schemes require a consistent flow of money from new
investors to continue,” explains the SEC. “Ponzi schemes tend to collapse
when it becomes difficult to recruit new investors or when a large number of
investors ask to cash out.”
In testimony before the
Senate Finance Committee in October 2013, Lew explained why he wanted the
Congress to agree to increase the federal debt limit—and why the Treasury has
no choice but to constantly issue new debt.
“Every week we
roll over approximately $100 billion in U.S. bills,” Lew told the committee.
“If U.S. bondholders decided that they wanted to be repaid rather than
continuing to roll over their investments, we could unexpectedly dissipate our
entire cash balance.”
“There is no
plan other than raising the debt limit that permits us to meet all of our
obligations,” Lew said.
“Let me remind
everyone,” Lew said, “principal on the debt is not something we pay out of our
cash flow of revenues. Principal on the debt is something that is a function of
the markets rolling over.”
The vast amount
of debt that the Treasury must roll over in such a short time frame is driven
by the fact the Treasury has put most of the debt into short-term “bills” and
mid-term “notes”—on which it can pay lower interest rates—rather than into
long-term bonds, which demand significantly higher interest rates.
At the end of
October, according to the Treasury’s Monthly Statement of
the Public Debt, the total debt of the federal government was $17,937,160,000,000.
Of this,
$5,080,104,000,000 was what the Treasury calls “intra-governmental” debt, which
is money the Treasury has borrowed and spent out of trust funds theoretically
set aside for other purposes—such as the Social Security Trust Fund.
The remaining
$12,857,056,000,000 was “debt held by the public.” This part of the debt
included $517,029,000,000 “nonmarketable” Treasury securities (such as savings
bonds) and $12,340,028,000,000 in “marketable” Treasury securities, including
bills, notes, bonds and Treasuring Inflation-Protected Securities.
But only
$1,547,073,000,000 of the $12,857,056,000,000 in marketable debt was in
long-term Treasury bonds that mature in 30 years. These bonds carried an average
interest rate of 4.919 percent as of the end of October, according to the
Treasury.
The largest
share of the marketable debt--$8,192,466,000,000—was in notes that mature in 2,3,5,7
or 10 years, and which haf an average interest rate of 1.807 percent as of the
end of October.
Another
$1,412,388,000,000 of the marketable debt was in Treasury bills, which carry
“maturities ranging from a few days to 52 weeks,” says the Treasury. These $1.4
trillion in short-term Treasury bills had an average interest rate of 0.056
percent as of the end of October, according to the Treasury.
The continual
rolling over of these short-term, low-interest bills helped drive over the
$1-trillion mark the new debt the Treasury had to issue in the first eight
weeks of this fiscal year.
The Treasury
has taken out what amounts to an adjustable-rate mortgage on our ever-growing
national debt.
If the Treasury
were forced to convert the $1.4 trillion in short-term bills (on which it now
pays an average interest rate of 0.056 percent) into 30-year bonds at the
average rate it is now paying on such bonds (4.919 percent) the interest on
that $1.4 trillion in debt would increase 88-fold.
Comments
With foreign governments dumping US bonds and
dollars, the end is near and Obama will drive us right off the cliff.
Norb Leahy, Dunwoody GA Tea Party Leader
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