Let’s look at an even bigger issue than the blank check financing of FNMA and FHLMC. This one may well be the triggering event in the collapse of the house of cards.
We, at TheFundamentals have previously written about what is contained in the Constitution about maintaining the credit of the United States and repaying debt (please see: TheFundamentals, December7, 2009 or just read the Constitution: Article I, Section 8.) The Constitution also requires the congress to report on the financial condition of the country (Article I, Section 9.) These requirements seemingly are just ignored. Does this matter? Well, let’s say a public company had to refinance a very large portion of its debt and its cash flow analysis suggested that it was also facing a huge requirement for additional financing. Let’s say that this company failed to disclose this information in a readily available and understood fashion. Let’s say they only revealed these facts in difficult to find websites and press releases and other arcane disclosures. Would this be deemed concealment or failure to disclose? What if it’s not a company but, instead, the largest borrower in the history of the world? What if it’s a country that depends upon foreign and domestic lenders to finance its endless bureaucracies, failed state and municipal governments, politicians and military adventures? Where can one go to find out just exactly how much cash money the US of A needs in the next 12 months? Where is this disclosure being made? Treasury Department? Federal Reserve? Congressional Budget Office? White House? ACORN? SEIU? AFSCME? Where or where, Barry and Timmy and borrowing Ben, do you let us know?
Well, TheFundamentals estimates that the United States will need to refinance about $1.5 trillion to $2.0 trillion in the next 12 months. This is maturing debt that must be replaced with new debt. We also estimate that the United States will need to borrow an additional $1.0 trillion to $1.5 trillion in the next 12 months. Combined, a cool $2.5 to $3.5 trillion. Eye popping numbers. But Barry would rather talk about dopey Muslim kids flying around with no passports and no baggage and a load in their underpants. (Aside: Barry, how about we just don’t let people into the US if they come from countries that don’t tolerate other religions, huh?) Here is a simple question that the boy president or the senate or the house might like to answer. Just how much will you borrow new and refinance in 2010? And just how much will you simply print instead of borrowing (borrowing Ben and little Timmy are quite good at running the presses)? And just how much do you think you can borrow/print/ refinance before the house of cards collapses? Why doesn’t the boy president (el presidente Niño for our Spanish speaking readers) talk with us about this huge financial issue which is a much greater threat to the homeland than Muslim kids? Could it have anything to do with the added benefits to bureaucrats of scaring Americans versus running a prudent financial government?
The Treasury issues a calendar projecting the dates of its auctions of treasury securities. Here is the link to that site: http://www.treas.gov/offices/domestic-finance/debt-management/auctions/auctions.pdf The calendar goes out to early May 2010. There is one key factor missing from the calendar. Amounts. Is it possible they don’t even know how much they will need just a few months out? No businessman who wanted to keep his business would not know this information. Or do they just wait to measure what the market will bear? Great disclosure, eh? There is critical financing information that the public should be receiving from the boy president and the boy treasury secretary; such as:
• Maturing US debt that is being refinanced. Refinanced means selling new securities and using the proceeds to pay off the maturing securities. Barry, somebody’s gotta know what’s maturing. If you don’t know, ask little Timmy. If little Timmy doesn’t know, ask the Chinese.
• Rates being paid for new funds versus rates of maturing funds and the resulting interest dollar cost. A lot of the debt of the US is very short term and as long as they can refinance it at low short rates the interest cost will be controlled, somewhat. Don’t kid yourself. Ben is keeping those rates low to help the folk in Washington DC. Alan did the same thing in the early 90's and we know that predictable outcome. Watch out when rates rise. It may well be a good time to extend maturities but that will also increase short term costs and this government seems to be interested only in the short term.
• New debt being sold to finance deficits and military adventures and washed up west coast bodybuilders. $1.4 trillion last year. In 2010? C’mon Barry, take a guess. One trillion? One and a half? Huh?
• And last, money just being printed. Let’s see a month by month comparison of money being printed to buy treasury securities, 2010 v. 2009 v. 2008. Would be informative. How much more “banana republic” promiscuity is in the works for the New Year, el presidente Nino?
This country now owes over $12 trillion to almost everyone on the face of the earth. Add in FNMA and FHLMC for another $4 or 5 trillion. Disgusting. How much do you need in 2010? Enquiring minds would like to know. The Constitution requires it! You took an oath to, "...preserve, protect and defend the Constitution of the United States." What do you call a person who disregards a sworn oath?
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