Monday, March 29, 2010

Transforming America! The fiscal train wreck is happening sooner than we thought, a leading bond market trader says.

Idiots applaud....

The fiscal train wreck is happening sooner than we thought, a leading bond market trader says. Which is why investors are now telling the U.S. government it will have to pay more to borrow money. Not as much more as Greece, but enough to constitute a shot across the Obama bow by what we call the bond vigilantes, investors who try to punish governments that splash too much red ink across national ledgers.

The passage of the health care bill has focussed investor attention on the runaway deficit situation, and its long-term consequences. The deficit, which ran to around 3 percent of GDP in George W. Bush’s final year, is now exceeding 10 percent. (Mercy dictates rounding numbers that are in any event estimates; all data from the non-partisan Congressional Budget Office.) Government debt held by the public has gone from 40 percent of GDP when Bush was last in the White House to 63 percent now and will hit 90 percent by 2020. That’s the level at which new studies say debt begins to reduce growth and jobs.

Unfortunately, the situation is even worse than reported, figures suggest. For one thing, the accounting tricks used to get the health care bill through Congress made it seem a deficit-reducer. It isn’t. Ask this: how can the government increase the number of insured people by 30 million, with half needing annual subsidies of $6,000 per year per family, and lower spending? Answer: it can’t. Most dispassionate observers are estimating that the new law will add $1 trillion to the nation’s $8 trillion debt, and that the government’s unfunded liabilities -- its promises of future pension and other payments -- come to somewhere between $60 trillion and $75 trillion over the next several decades. Even without those obligations, the government now has $14 trillion in liabilities against only $2.7 trillion in assets. Bring in the receivers. READ MORE...

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