After six years of non-stop deficit spending that has added $8.2 trillion to the national debt, the U.S. Treasury has announced that it expects to reduce the country's debt by $35 billion this quarter.
Given that national debt growth has rocketed past $16.7 trillion and is on track to exceed $17 trillion at some point in the fall, a $35 billion reduction is laughably tiny. It's just 0.02% of what we as a nation owe.
And in the very same statement, the Treasury admitted that in the following quarter it expects to be back to borrowing as usual - $223 billion worth, more than six times the amount it plans to pay down this quarter.
So why bother?
"I don't believe in coincidences," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Our leaders in Washington on both sides of the aisle are terribly under pressure from the American public right now, and I think this is a very convenient announcement to say, "Hey, we're doing the right thing, keep us all in office for a little while longer.'"
And apart from any political motivations, Fitz-Gerald wonders whether the plan to pay down $35 billion of the national debt can even be considered legitimate, given the way the government borrows money from itself.
"It's like taking blood from the left arm and putting in in the right arm and calling it a transfusion," Fitz-Gerald said.Read More...
The Stimulus Secret Obama Doesn't Want You to Know
As he campaigns for re-election, U.S. President Barack Obama wants voters to believe his 2009 stimulus package played a key role in the economic recovery.
But while the American Reinvestment and Recovery Act (ARRA) did indeed help many people by spreading more than $787 billion around the country, it fell short of its goal of stimulating an economic recovery.
That's because about two-thirds of the stimulus package either went to debt reduction or into people's savings accounts. Neither boosts the economy.
That's the perspective - with some exaggeration for effect - you'll hear from Republicans during the presidential campaign.
"At the signing of the 'stimulus' three years ago, President Obama said he wanted to be held accountable for the results of his spending binge," House Speaker John Boehner said last week. "Today, there's no denying the fact that his 'stimulus' policies not only failed, they made things worse."
President Obama will need to shift the focus to ARRA's benefits. It did put a lot of money into the hands of millions of people through the tax rebates and extra entitlement spending on Medicare and unemployment benefits. And he can fall back on his mantra that the stimulus package kept the crisis from getting worse.
"Most economists - almost every economist - will tell you that had we not put [ARRA] in place we could've tipped into a great depression," President Obama recently told ABC News.
And yet that's not quite the same thing as jumpstarting the economy.
"Ultimately the stimulus did not live up to the promise of what the American public expected it to do, and that's bring about a strong, sustainable recovery," Michael Grabell, author of a new book on ARRA, "Money Well Spent?" told The Daily Ticker.
A Massive Stimulus PackageOne would think the sheer size of the stimulus package would have done more than just keep things from getting worse.
"In raw dollars, inflation adjusted, the stimulus comes out as the biggest - bigger than the moon race, the [Works Progress Administration], the Louisiana Purchase, the Manhattan Project," Grabell told The Fiscal Times.
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As Greek Debt Default Nears, Investors Need to Take Cover
At this point a Greek debt default is virtually unavoidable, and it could happen in a matter of weeks.
The ensuing chain reaction will upend markets around the world and will almost surely lead to more defaults among the European Union's (EU) other debt-plagued nations, collectively known as the PIIGS (Portugal, Ireland, Italy, Greece and Spain).
The bond markets have already passed sentence, with the yield on two-year Greek bonds spiking to an astronomical 76% yesterday (Tuesday). Yields on 10-year Greek bonds rose to 24%.
By comparison, the 10-year bond yields of another PIIGS nation, Italy, rose to 5.74%. Meanwhile, bond yields for the EU's strongest economy, Germany, have dropped below 2%.
The credit default swap (CDS) markets, where investors can insure their bond purchases against default, agree with the bond markets' verdict. As of Monday it cost $5.8 million and $100,000 annually to insure $10 million worth of Greek debt for five years, which means the CDS market now considers default a 98% probability.
Most European stock markets have been hammered over the past several weeks, with some dropping as much as 25%.
"Default is inevitable," said Money Morning Global Investment Strategist Martin Hutchinson. "Greeks are paid about twice as much as they should be, and that gap can't be solved by austerity."
How Soon is NowIn recent weeks Germany has shown more reluctance to dig deeper into its own pockets to bail out Greece and the other PIIGS. At the same time, Greece has struggled to implement the austerity measures that are required if it is to continue receiving aid from the European Central Bank (ECB) and the International Monetary Fund (IMF).
Greece's budget deficit has increased 22% this year, while its economy is projected to shrink more than 5%.
Every new development appears to bring Greece closer to the brink of default - and some see that happening in the very near future.
"My guess is there will be a Greek debt default by the end of this fiscal quarter - yeah, that means very soon," said Money Morning Capital Waves Strategist Shah Gilani.
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Don't Look Now but the National Debt Could be $23 Trillion by 2021
There was a lot of back-patting in Washington this week after U.S. President Barack Obama signed a debt-ceiling deal that he and members of Congress claim will reduce the national debt.
But here's the truth: This deal does nothing to reduce America's debt burden. In fact, the $14 trillion we owe now could every easily exceed $23 trillion by 2021.
That's a 62% increase.
It only takes a little bit of number crunching to see what I mean.
The deal brokered by Congress cuts spending by just $917 billion over a 10-year period, with a special congressional committee assigned to find another $1.5 trillion in deficit savings by late November.
Even if you round up, that $2.5 trillion in "savings" over a 10-year period is inconsequential when you consider that President Obama added nearly $4 trillion to the national debt in just a few short years in office.
How can you make any progress on the debt front when you're adding $4 billion in new liabilities every day?
And the story is even worse than that: According to the Congressional Budget Office (CBO), even the $2.5 trillion the government claims to be saving is quickly vaporized by inflation and lost economic output.
CBO: Contrary to Barack ObamaThe CBO in January estimated that a 0.1% reduction in growth rates would increase the deficit by $310 billion over the next 10 years, while a 1% increase in inflation rate would increase the deficit by $867 billion.
The CBO projects the average growth rate from 2011 to 2016 will be 3.25%, and the non-partisan group has the average rate of inflation pegged at 1.55% over that same period.
However, growth in the first half of 2011was 0.8% and the personal consumption expenditures (PCE) inflation index - the type of inflation the CBO looks at - was 3.5%.
So let's do the math.
If growth and inflation statistics magically revert to CBO expectations - which would be a long shot considering how much they're already off - then the budget deficit over the next 10 years would rise by $928 billion. That alone is more than enough to wipe out the $917 billion of initial savings in the debt-ceiling bill.
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