So What's Another Trillion or two?

As the debate on the debt ceiling begins to move closer to its inexorable place on the front burner we are beginning to see what some of the real numbers are, and we can expect the hyperbolic rhetoric to ratchet up a few more notches. It would be hard to imagine anyone being able to top former Bush Treasury Paul O’Neill who recently stated "The people who are threatening not to pass the debt ceiling are our version of al-Qaeda terrorists. Really. They're really putting our whole society at risk by threatening to round up 50 percent of the members of the Congress, who are loony, who would put our credit at risk."

Never the less expect the issue to create some sharp divides, both in Congress and amongst the public. Needless to say the politicians will play football with this for as long as they can and milk it for whatever perceived partisan advantage they think they can get. Facing reality and making hard choices are not their forte, never has been and don’t expect it to be anytime soon. As someone once said “Governments always do the right thing, but not until all other options have been exhausted.” Pretty much sounds like the game plan we can expect.

Already things are starting move into the realm of what can only be called bizarro world. With only some $30 Billion remaining below the legally prescribed maximum, (.002% of the total $14.3 Trillion allowed) the Treasury announced today that it plans to issue $72 Billion in 3, 10 and 30 year bonds next week. This of course would place the Treasury department technically in violation of the law. But who’s going to stop Little Timmy Geithner and his band of merry pranksters? The President? The Congress? Don’t hold your breath. Congress and the DOJ can’t even be bothered to enforce the new regulations they passed in the Dodd-Frank so-called financial reform law. I’d like someone to ask the CFTC about those required position limits that were supposed to be in place by January 15 but are still “under consideration." Couldn’t possible have anything to do with the CFTC Chairman being a “former” Goldman Sachs employee now could it? But I digress.

I would expect that this “technical” violation will become the Administration’s lever to try and force the increase through. “We can’t have this situation go on. We can’t prosecute the Secretary of Treasury for willful violation of the law now can we?” Yeah right like that will ever happen.

So now we get to the revelation of what the Treasury really wants. Hold onto your hats, or more precisely your wallets. The Treasury says it needs an additional $2 Trillion debt capacity through the end of 2012! I’d ask if they are kidding but I know that they are perfectly serious. Never mind that this number is well over 100% of US GDP or represents a 14% increase in total debt. The problem that is not being spoken of, is not that the Congress is going to keep spending like there is no tomorrow, that’s to be expected, we’re talking Congress here, it’s that of the already $14.3 Trillion in outstanding debt, 28% of it is due to come due in this same period.

So here we sit already $14.3 Trillion in the hole and Timmy and company want to dig the hole $2 Trillion deeper. Of that already existing $14.3 Trillion, $4 Trillion either has to be paid off, rolled over, or sold to new holders. Paid off? Not a snowballs chance in hell. Rolled over? That percentage already held by the FED, maybe, as to the rest, not a snowballs chance in an equatorial jungle. Sold to new holders? Therein lays the POMO game's perennial out. Think Japan is going to be buying any more US debt, never mind rolling over what they already have? I doubt it, they’re already selling anything not welded down to finance their rebuilding process. China? Well they might by some but it will be far outweighed but what they are already selling and what they will continue to sell. India? Same story as China. The Europeans? Silly rabbit. PIIGS is all you need to know there.

Who does that leave then? It doesn’t take a genius to guess the FED and ultimately the US taxpayer and their children and grandchildren. So you can pretty much bet that the Wall Street banks will continue to prosper and pass out those fat bonus checks while our GDP begins to contract, real unemployment grows and the rest of the world casts an increasingly jaundiced eye on our ability, never mind willingness to address or fiscal problems.

What could possible go wrong? Never mind. I forgot is it "Survivor" or "Dancing With The Stars" that’s on tonight? Bin Laden is still dead isn’t he? Can we bring him back and kill him again?