How can this end well for the US? Our ship is running a ground…
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National Debt Up $3 Trillion on Obama’s Watch
(Credit: CBS/iStockPhoto)
New numbers posted today on the Treasury Department website show the National Debt has increased by more than $3 trillion since President Obama took office.
The National Debt stood at $10.626 trillion the day Mr. Obama was inaugurated. The Bureau of Public Debt reported today that the National Debt had hit an all time high of $13.665 trillion.
The Debt increased $4.9 trillion during President Bush’s two terms. The Administration has projected the National Debt will soar in Mr. Obama’s fourth year in office to nearly $16.5-trillion in 2012. That’s more than 100 percent of the value of the nation’s economy and $5.9-trillion above what it was his first day on the job.
Mr. Obama frequently lays blame for soaring federal deficits on his predecessor.
“By the time I got into office we already had a $1.3 trillion deficit and we had exploded the national debt,” he said last month during one of his backyard chats with Americans.
Just last Friday, the Treasury Department portrayed it as good news when it reported that the federal deficit in the fiscal year that ended September 30th was $1.294 trillion. That’s less than the $1.416 trillion deficit accrued in 2009 – the largest federal deficit ever recorded. It was also less than the $1.556 trillion that had been initially projected for 2010.
The soaring deficit and Debt is one of the reasons Mr. Obama is adamantly opposed to extending tax cuts for Americans earning over $250,000 a year.
The ten year cost would total $700-billion and Mr. Obama says it would needlessly add to the deficit and Debt.
“And then we’ve got to pay interest to China or whoever else is willing to buy our debt,” he repeatedly argued in recent weeks.
President Obama and Congress await recommendations on ways to reduce federal deficits from the National Commission on Fiscal Responsibility and Reform.
The 18-member panel will report December 1st – after the midterm election.
The Commission, chaired by Democrat Erskine Bowles and Republican Alan Simpson, was established by Mr. Obama to provide recommendations on how to “put the budget into primary balance, meaning that the federal government will pay for all of its programmatic obligations.”
The federal budget was last in balance from 1998 to 2001.
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Foreign investors scooped a near record amount of US debt in August and sharply increased their holdings of Treasury bonds, according to the latest Treasury International Capital report.
August was marked by fears that the US economy faced a possible double dip recession and yields on Treasury bonds fell sharply as bond investors priced in a move by the Federal Reserve to start another round of quantitative easing. The Fed announced in August that it would start reinvesting principal payments from its agency debt and agency mortgage-backed securities in longer-term Treasury securities.
Since the Fed’s policy meeting in September, investors have grown more confident that further easing, QE2, will be announced at the Fed’s next policy meeting in early November. In turn, the dollar has weakened sharply, particularly against the yen and a number of emerging market currencies.
Analysts say the prospect of QE2 should keep money flowing into US debt and the recent fall in the dollar should boost inflows as some countries intervene in the market and buy the US currency.
“The TIC data in the future will reflect strong foreign demand due to currency intervention,” said George Goncalves, head of interest rate strategy at Nomura Securities. “The question is where those funds are invested and I expect it will favour short-dated bills rather than longer-term maturities.”
The TIC report disclosed that foreign holdings of dollar-denominated short-term US securities, including Treasury bills, and other custody liabilities increased $29.7bn in August, with foreign holdings of Treasury bills rising $29.1bn.
Net purchases of US long-dated securities more than doubled to $128.7bn in August from July’s $61.2bn. Purchase of Treasuries surged to a net $117.1bn, up from $30bn in July, and represented the heaviest buying of US government debt since last November.
“August reveals a near record amount of debt buying, with Treasury coupons the strong performer from both private buyers and central banks,” said David Ader, strategist at CRT Capital.
The UK was the biggest buyer of Treasuries at $74.1bn during August, followed by China, Belgium and Japan.
Overall, China remains the biggest holder of US Treasury debt. It increased its holdings by $21.7bn to $868.4bn, but is below its peak for this year of $900bn in April. Japan purchased a net $15.6bn in August and remains the second-largest foreign holder of Treasury debt at $836.6bn.
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