"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Tuesday, July 12, 2011

Debt Ceiling, 10 Year, & Elders

"I have little question that as long as this president is in the Oval Office, a real solution is probably unattainable" said Mitch McConnell, the top Republican in the Senate.  If that were the case, we could see the 10 Year bond well over 4, maybe 5 percent, instead its under 3 (See charts below).  Time and again the leaders of the United States fall victim to the zeitgist in Washington.  So long as the general public stomachs the people in Washington speaking nonsense and creating fear for their own benefit, the Pols will continue to do so.

Given that markets priced in the problems in Europe in advance, it looks like the US is in safe territory, for now.  The FED quit buying Treasury's in June and bond prices are still stable.   This whole thing is a joke.  The part that irks me the most is there are legitimate issues that we all we need to figure out and going over things like this do not help.

(article continues below, after the charts)

United States 10 Year - Government Bond
Source: Bloomberg
Ireland 10 Year - Government Bond
Source: Bloomberg
Portugal 10 Year - Government Bond
Source: Bloomberg

Belgium 10 Year - Government Bond
Source: Bloomberg
From NPR on May 20th, 2011:

The U.S. government hit the debt ceiling today. This makes life very complicated for the Treasury Department, which now needs to shuffle money around to pay the bills.  But originally, as it turns out, the debt ceiling was supposed to make things easier.  A hundred years ago, it seemed so straightforward.

When Congress wanted to spend, it spent. And if it needed to borrow, it approved the sale of a bunch of Treasury bonds. Congress would consider each new bond individually.  "They would literally approve the form of the security, the purpose of the security, what the duration was going to be, what the interest rate was going to be", says Susan Irving from the Government Accountability Office.  But with the start of World War I, that process became way too time consuming.  "If you think about the number of decisions that go on during a war Irving says, you're coming in constantly. 'Oh, now we need to borrow up to so much to build more tanks'"

So Congress delegated the details of bond sales to the Treasury Department.  But Don Ritchie, the official historian of the Senate, says Congress was wary about giving too much power over to the Treasury.  "They knew they had to do it, there was an urgency to it," Ritchie says. "But one way to control it was to say, 'You have a cap, you just can't go beyond that limit."  So in 1917, Congress came up with the first real debt limit. They wanted to make their lives easier, but not give up too much control. Sort of like putting a leash on a toddler.

Clearly we are WAY passed the initial mentality of having the debt ceiling.

...the Treasury department is starting to dip into the retirement accounts of government workers, giving them IOUs and freeing up more cash to keep the government running.

Considering this man's point and good old fashion gumshoe work, it appears the government, on both sides, are taking full advantage of part of the nation.  By threatening them with Pension payments, the elderly, who grew up on "Gov't loves you" kind of propaganda are now in fear and focused on the "debt ceiling debate".  Here is the data.  The Spread sheet is from the Census and the retirement age chart is the Social Security Administration.

Source: Census Table 1 & Social Security Administration