This quote is from Associated Press writer Alan Fram. We found it in the June 4 edition of the Seattle Post-Intelligencer:
"'Congress may be able to postpone politically difficult votes on boosting the government's debt limit until after the November elections', two top congressional aides said today"
(Emphasis by The Privateer)
Then again, they may not be able to. Since the June 2002 debt ceiling rise of $US 450 Billion, the debt limit shenanegans in Congress (and in the Treasury) has become an annual event, albeit one which does not attract the attention of other annual events - like the Super Bowl or the World Series.
Here's the problem for the poor old Congress, and especially the House of Representatives. If the House of Reps approves the Bush budget for 2005, any necessary increase in the debt ceiling is contained in the budget and the House does not need to go through the ordeal of a separate vote on it. If they don't pass the budget, they DO have to vote on a debt ceiling increase. Right now, the House is at daggers drawn over many items of the 2005 budget, including but not limited to the tax cuts contained therein. It seems unlikely that the budget will be passed.
Whatever course of action the House chooses, the Senate must vote separately on any debt limit/ceiling increase. This is not as politically serious a prospect since only one-third of the Senators are up for re-election in November. ALL members of the House are up for re-election in November.
Of course, NOT passing an increase in the debt limit is seen as being "unthinkable" since it would force a default on Treasury debt paper. Treasury Secretary Snow, when asked about the approaching debt limit, said that: "It would be well for Congress to act before the August recess and I would urge Congress to do that. It's important to get the matter dealt with as soon as possible."
By the way, the last debt ceiling increase was one of $US 984 Billion and it took place just over a year ago - in May 2003. The official projections for the 2004 fiscal year expect a budget deficit of $US 450 Billion - Treasury debt is rising at more than double that pace. Go figure.
So, we face the prospect of either the House approving the Bush 2005 budget and thereby escaping the necessity of having to vote on the new debt ceiling (a proposed hike of $US 690 Billion) or not approving the budget and therefore having to vote to raise the Treasury's "credit card limit" in the full glare of public view. The Senate will have to go this route whatever the House does. And this will have to be done between now and when the House goes into recess for the elections in August.
If the Congress DOESN'T pass a bill raising the debt limit, we face the prospect of another episode of the Treasury desperately playing a financial game of "pass the parcel" as they shuffle funds from one account to another in an attempt to avoid hitting the debt wall (sorry, that's ceiling) before the November elections. Remember Mr Rubin's sleight of hand in the late 1990's - or Mr O'Neill reprising Mr Rubin's act last year? What a prospect in the middle of what is very likely to prove the most potentially divisive US Presidential election in living memory.
Just for the record - As of June 3, 2004:
The Treasury's debt to the penny was $US 7.211 TRILLION
The Treasury's debt "subject to limit" was $US 7.166 TRILLION
The Treasury's debt limit is $US 7.384 TRILLION
And another one - The increase in debt "subject to limit" in the year to May 31, 2004:
May 31, 2003 - $US 6,498,459 Million
May 31, 2004 - $US 7,151,523 Million
Increase - $US 653,064 Million ($US 653.064 Billion) - in ONE year
Now here's something to put these numbers in perspective. According to the Treasury's own website, TOTAL Treasury debt "subject to limit" at the end of 1976 was $US 653.544 Billion. 1976 was 200 years after the signing of the Declaration of Independence and 189 years after the ratification of the US Constitution in 1787. That's how long it took the US government to pile up $US 653.544 Billion in debt. The present US government has just almost exactly equalled that figure - IN TWELVE MONTHS.
Of course, no US politician, Republican or Democrat, wants ANY of this to enter the debate as they try to get themselves re-elected later this year. Well, almost no US politician, there IS Ron Paul, but he is an honourable and singular exception. Treasury Secretary Snow wants "the matter dealt with as soon as possible". What is it he wants dealt with? Is it the looming financial devastation of this insanely profligate borrowing binge? Is it the potential impoverishment of the American people? Is it grotesque immorality of passing such an insupportable burden onto the young and not yet born?
No, he wants a higher "debt limit".
Consider the fact that for the past six to eight weeks, the US "money supply" numbers - M2 and M3 - have been expanding at a pace which has only been equalled in US history by the brief "liquidity explosion" in the immediate aftermath of 9/11. Consider the fact that this monetary orgy is taking place in the absence of any visible "financial crisis" and BEFORE the Fed has even begun to raise official US rates - a process which many if not most expect to begin at the end of this month.
Consider this gigantic burst of Fed "liquidity" coming at the same time as a one year increase to federal government indebtedness of over $US 650 Billion and a gigantic increase in consumer and mortgage debt.
Now, consider the ONLY rational definition of "inflation" - AN INCREASE IN THE QUANTITY OF THE TOTAL STOCK OF MONEY.
Do you think that the US government is only guilty of "terminological inexactitudes" in regard to WMDs in Iraq and the conditions of the incarceration of Iraqi "suspects" and "terrorists" of all varieties? In the face of the present blowout of the "total stock of money" in the US, do you ever boggle at the spectacle of government reports of "inflation rates" of 2% per year? The Bush Administration has been caught out in their "porkies" about Iraq. What would happen if they ever got caught out in a lie of THIS magnitude?
Gold had a pretty quiet (and short) week this week. The paper markets too didn't do much either, although by the end of the week, Treasury yields were again surging upward, especially at the short end. Next week is the G8 meeting in Georgia. And every day, the countdown is on towards the end of June, when the FOMC meets and decides what (if anything) to do about US official interest rates.
We are, all of us, living in a financial "fools paradise". For those of us who are not fools, it is not a very pleasant place to be. The mouthings about "economic growth" and "robust economies" is farcical. The Emperor has been naked for so long that the sight and sound of him has lost any of the "novelty" value it might have had in the distant past. It is hard to take it all seriously, yet we know that IS serious - VERY serious.
All we can do is watch as the debacle unfolds and make sure we are insulated from it to the extent possible, notably by reducing or preferably eliminating debt and by holding physical Gold - that one form of Money which is NOT connected to the present paper blizzard.