It's official.
Here is the relevant table from the latest available Daily Treasury Statement dated July 31, 2008
TABLE III-C Debt Subject to Limit |
___________________________________________________________________________________________
| | | Opening balance |
| _________________________________________________________________
| Closing | | | Fiscal |
| Balance Transactions | balance | | This | year |
| | today | Today | month | |
___________________________________________________________________________________________
Debt Held by the Public 1/ $ 5,403,382 $ 5,351,840 $ 5,285,064 $ 5,049,306
Intragovernmental Holdings 4,182,098 4,180,696 4,206,942 3,958,348
Total Public Debt
Outstanding 9,585,480 9,532,536 9,492,006 9,007,653
Less: Debt Not
Subject to Limit:
Other Debt 495 495 496 502
Unamortized Discount 50,815 49,695 49,660 71,877
Federal Financing Bank 14,000 14,000 14,000 14,000
Plus: Other Debt Subject to Limit
Guaranteed Debt of
Government Agencies 51 51 51 69
Total Public Debt
Subject to Limit 9,520,220 9,468,396 9,427,901 8,921,343
Statutory Debt Limit 10,615,000 10,615,000 9,815,000 9,815,000
Act of July 30, 2008, permanently increased the statutory debt limit
to $10,615 billion.
(Emphasis by The Privateer)
Please note in this official data recording the Treasury debt "subject to limit" that on July 30, the last day of the "old" $US 9,815 Billion debt "limit", the Treasury had a "buffer" of $US 387 Billion. One would have thought that this would be enough to see the US government through the coming political conventions, the campaign for the new President, and maybe even to inauguration day in late January next year. Under "normal" circumstances, it would have been. But these are NOT normal circumstances. The US Treasury has just taken on the "responsibility" for the entire home mortgage portfolio of Fannie and Freddie. That's more than $US 5 TRILLION.
So, from having a "buffer" of $US 387 Billion on July 29, the Treasury's "credit card" was transformed into having a "buffer" of 1,095 Billion on July 30. It's a neat trick, isn't it? Was it only a week ago that Treasury Secretary Paulson was telling us that the "cost" of putting a floor under Fannie and Freddie would probably only be about $US 25 Billion at worst? Didn't the economic commentators chime in with the observation that the chances were "very good" that it wouldn't cost the US taxpayers anything?
If that were the case, WHY TACK $US 800 BILLION ONTO THE TREASURY'S DEBT "LIMIT"???
If you wanted to see what it would really look like if and when Ben Bernanke started to rev up his (money) helicopters, it doesn't look as though you'll have to wait much longer. The US Treasury has seen its debt limit increased by $US 1,650 Billion since September 27, 2007. That's ten MONTHS ago. It took the US government just under two CENTURIES (1787 - 1984) to increase its funded debt to a TOTAL of $US 1,650 Billion. Now they have given themselves permission to borrow that amount in less than ONE YEAR.
It won't work, of course. Money and wealth are two different things. Printing or borrowing into existence any amount of money will not bring one iota of REAL wealth into existence. If you doubt it, just look at Zimbabwe where this week, TEN "zeros" were knocked off the local currency, which had a "steet" exchange rate of a bit more than ONE TRILLION (that's a "one" with TWELVE zeroes after it) to the US Dollar. They did keep the "one" at the start of all those zeros, though.
There are only two end destinations for any form of "money" produced by government fiat, backed by nothing, and resting on the full "faith and credit" of a government - ANY government. One destination is the one reached by the German Mark in 1923 and the Zimbabwe Dollar in 2008. What was 10 Billion Zimbabwe Dollars on July 29 became ONE Zimbabwe Dollar ("worth" a bit less than one cent US) on July 30.
The other destination is a fundamental root and branch currency reform - BEFORE the circulating medium of exchange becomes utterly worthless as it did in the German and Zimbabwe examples (and many others which history records). The best modern example of this is what Ludwig Erhard did in post-war Germany. The German Mark went from worthless paper to the hardest and strongest currency in Europe and arguably - (with the exception of the Swiss Franc) in the world in less than a decade. West Germany was transformed from a pile of rubble to an economic powerhouse over the same period.
Fundamentally, a nation's economy is only as "good" as the money which allows that economy to function. The debate in the US and elsewhere is still revolving around what can be done to "save" the current system. But before the system can be saved - resuscitated might be a better word in this context - the debate has to become fundamental. It has to encompass the NATURE of the MONEY on which the system is based. The longer that is delayed, the bigger the mess that has to be cleaned up will be. Let us hope it will not be delayed too much longer. At best, we can only project it into 2009 at the earliest though, the US is having an election for the remainder of this year.
(Chart appears here in original analysis.)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
Two weeks ago, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That's a new 2008 high for the metal in terms of the Japanese currency.
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