Over the last four months, the federal government has conducted the most rapid expansion of deficit spending since World War II, and now even the New York Times has stopped pretending that it’s not a problem. Treasury bond yields have started upwards, forcing the US to pay more in interest service, but that’s if we can convince people to buy our debt at all anymore:
The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.
As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government.
Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of United States debt being issued to finance an economic recovery.
Instead of solving the underlying problem, the Treasury is instead looking to find more buyers through the same kind of creative financing and derivative impulses Barack Obama decries in almost every speech:
To calm nerves and fill the deficit hole, the government is getting creative. The Treasury is ramping up its auction calendar, holding more frequent sales of government debt and selling the debt in expanded amounts. It is now holding sales of its 30-year bond each month, up from four times annually.
It is also resuscitating previously discontinued bonds, such as the seven-year note and the three-year note, to try to mop up any available money all along the yield curve. There is even talk of issuing billions of dollars of a new 50-year bond, though the idea has not won official approval. …
[T]o keep borrowing costs low, the government is trying to expand the group of firms that bid at Treasury auctions. After the demise of such names as Lehman Brothers, the number of these firms, called primary dealers, has shrunk to 16, the smallest since this elite club was formed decades ago. Now the government is in discussions with smaller firms like Nomura and MF Global to persuade them to join.
Well, that’s hardly unusual. Every Ponzi scheme has to find new suckers, after all, and this one’s no different. The escalating deficits will cost the Ponzi structure, though, in interest payments down the line. Right now, we pay about $172 billion a year to service our debt, or roughly 5% of our annual federal budget. By 2019, we’ll be paying over $800 billion a year in interest alone, or over 20% of our annual federal budget in today’s dollars, according to the CBO.
Why? This chart showing deficit projections over the next decade from the CBO and OMB show the reason investors want better return on their bonds:
And that’s if we can get them to buy it at all. Most Ponzi schemes collapse when the con can’t attract any more suckers. Don’t expect this one to be any different.
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