Thursday, August 06, 2009

Treasury Debt Trajectory

With the Treasury issuing $250 billion in the last month, and the Federal Reserve mopping up any excess through direct purchases and open market operations, the US outstanding debt reached $11,659,077,874,250.30 as of August 5th. At the current rate of growth, the debt will reach $12 trillion by October and may hit $12.5 trillion by December. All of this is dependent on the flow of tax revenues and economic growth.

Monetization is a form of default because it essentially says that there isn't enough capital in the market to absorb the newly issued debt at the government "desired" interest rate. There is simply too much debt outstanding for the government to continue spending at its current rate with not enough real economic activity. So expect taxes to rise to cover this government led debt binge. At some point I would hope that people wake up to this and force some sort of change towards financial prudence. Until then put your seatbelts on for what is going to be a bumpy ride.

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