"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

24 December 2006

Easy Money: U.S. Treasury Admits "US is Bankrupt"

In tribute to the Xmas spirit, it's it interesting that the Treasury released a report a week ago Friday at 5:30 pm admitting that the U.S. is bankrupt. Oh, there's some interesting detail about how troubled the economy is, like housing, for example. One straight year of declining residential fixed investment. But the bottom in housing is near, if you believe the dogma from CNBS.
P. 9 : Growth in real GDP continued to increase 2.6 percent in the second quarter; and 2.2 percent in the third quarter of 2006. Holding growth down in the third quarter was a sharp 18.0 percent annual rate decrease in residential fixed investment, extending a string of declines to four quarters in this sector as housing demand weakened.

BTW, the federal debt ceiling was increased again to $9 TRILLION but the debt increased by a WHOPPING $4.9T. Nothing to see.
P. 10: Federal debt is subject to a statutory ceiling known as the debt limit. Prior to 1917, the Congress approved each issuance of debt. In 1917, to facilitate planning in World War I, the law established a dollar ceiling for Federal borrowing, which has been periodically increased over the years. On March 20, 2006, legislation became effective raising the current limit from $8,184.0 billion to $8,965.0 billion.
P. 17: The largest liability in recent years has been Federal debt held by the public and accrued interest, the balance of which increased to $4,867.5 billion in 2006.

But the Treasury admits in budget-speak, the US Government can't afford its scheduled benefits for all you baby boomers. Merry Christmas !
P. 10:The net social insurance responsibilities scheduled benefits in excess of estimated revenues) indicate that those programs are on an unsustainable fiscal path and difficult choices will be necessary in order to address their large and growing long-term fiscal imbalance. Delay is costly and choices will be more difficult as the retirement of the ‘baby boom’ gets closer to becoming a reality with the first wave of boomers eligible for retirement under Social Security in 2008.

And this contagion of debt is also a UK dilemma. UK government deficits exceed their annual GDP. And housing price increases are out-of-control there.

Officially, [UK] public sector net debt stands at £486.7bn. That’s equal to US$953.9bn and represents a little under 38% of annual GDP. Add the state’s “off balance sheet” debt, however – including its pension promises to state-paid employees – and the total shoots nearly three times higher. Research by the Centre for Policy Studies in London says it would put UK government deficits at a staggering 103% of GDP.

The official U.S. debt
stands at $8.614 trillion or 67% of (nominal) GDP but when we add in our “off balance sheet” items the national debt stands at $53 trillion or 403% of GDP. Macroblog points out that this economic environment is characterized by "easy money" - If you accept the 10-year/funds-rate spread as being related to the relative ease of monetary policy, then the period from 1993 to 1995 looks relatively stimulative.

Breathtaking ! Have a happy holiday but be careful with that last minute impulse spending...


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