This Year US Public Debt Could Reach End Game !

Every new dollar in debt result in negative growth! Game over!

• Whether it is this year or 2011, I know it is close. I don’t think based on current trend, D-day is 5-10 years away. More like within the next 3 years.
   
• The chart above illustrates the problem America is in. No amount of debt stimulus plan will result in positive growth. Thus, what we see is an oxymoronic ’jobless growth’ recovery! The government can only manipulate economic statistics for so long. The chickens are coming home to roost. Whether the snakes like it or not, the economy need to go to a phase of debt liquidation: ie debt reduction. The current debt of over US$12T at 3% interest amounts to  US$360B in interest annually. This is 16-18% of tax revenues. When we include unfunded liabilities, the debt is easily US$100T.
   
• With social security, Medicare and Medicaid funding in negative territory to the tune of US$29B (2010), things are definitely coming to a head! How long can this Ponzi scheme last? Not much longer! Maurizio d’Orlando opines:
   
  In 2008, the size of the debt was such that it was quite clear that it was not sustainable. Now we have a timeframe to measure the likelihood of insolvency for the US public debt, and it is this year. The reason for that is described in an article whose title needs no explanation: “The bankruptcy of the United States is now certain”.[4]
   
  The abyss of debt 
  By the end of 2010, the US Treasury will have to refinance US$ 2 trillion in short-term debt, plus additional deficit spending for this year, estimated to be around US$ 1.5 trillion (US$ 1.6 trillion today two months after the original article was published). Together, the US Treasury will need to borrow US$ 3.5 trillion (US$ 3.6 according to this writer) in just one year.
    
  In 1999, two well-known economists—Alan Greenspan and Pablo Guidotti—published a formula in an academic paper. Kept secret for a long time, it is designed to predict with precision when a country’s public debt will lead it to be insolvent. Called the Greenspan-Guidotti rule, it says that to avoid a default, countries should maintain hard currency reserves equal to at least 100 per cent of their short-term foreign debt maturities.
    
  According to the author, the United States holds 8,133.5 metric tonnes of gold (the world’s largest holder). At November 2009 dollar values, that is about U$ 300 billion.[5] The US strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that is roughly US$ 58 billion worth of oil. According to the IMF, the US has US$ 136 billion in foreign currency reserves. Altogether, that is some US$ 500 billion in reserves (US$ 455.5 billion according to AsiaNews).
    
  Foreigners hold 44 per cent of US$ two trillion short-term US debt; that is US$ 880 billion. Total domestic savings in the United States are only around US$ 600 billion annually. If the United States needs to sell US$ 3.5 trillion (or US$ 3.6 trillion) in Treasury bills, and all domestic savings combined are put into US Treasury debt, the United States will still fall short by nearly US$ 3 trillion. Where is the rest of the money going to come from?
   
  China’s gold 
  Not China, nor India or any other Asian countries. Last year, China has in fact proportionately reduced its holdings in US Treasury bills in relation to rest of its reserves.
    
  Recently, the International Monetary Fund (IMF) put up 191.3 tonnes of gold for sale. Some analysts had earlier suggested that China might be interested in buying it. Assets in dollars are estimated to represent over 70 per cent of China’s US$ 2.4 trillion foreign exchange reserves. As of April 2009, China held 1,054 tonnes of gold or 1.2 per cent of its GDP. That falls well below the world average. Indeed, gold represents less than 10 per cent of China’s total reserves.
    
  According to the China Daily[6], a semi-official mouthpiece for the Communist Party of China, China is not likely to buy IMF gold because it might upset the market. However, some Chinese commentators believe that Beijing should increase its gold reserves to 1,800. Sources told AsiaNews that China’s real goal is 4,000 tonnes.
    
  The same is true for other Asian countries. For instance, India, Mauritius and Sri Lanka have bought 212 tonnes sold by the IMF. 
  As for Japan, it is likely to continue avoiding open confrontation with the United States; but the real intentions of its top financial circles might be inferred from a mysterious and unsolved incident that occurred last summer when two officials from Japan’s central bank were caught at the Italian-Swiss border town of Chiasso carrying US Treasury bills with a nominal value of US$ 134.5 billion.
     
  Since 1945, the US dollar has been the main international reserve currency. In theory, this gave the US Federal Reserve the power to issue debt securities at will, with the value of international trading assets. However, the Greenspan-Guidotti rule restricts this power.
   
  Whenever US insolvency becomes self-evident, no one dare say they did not know. The Greenspan who came up with the aforementioned formula is the same Alan Greenspan who chaired the Federal Reserve for 18 years and allowed speculative. i.e. “structured” finance to expand (based on poorly tested mathematical algorithms).
    
  This is the same Greenspan who in 1977 wrote a prophetic PhD dissertation (which was removed from his university at his request in 1987, when he became Fed chairman) on how financial bubbles develop in real estate and then burst. Not only was Greenspan aware of it, but so were US top financial circles. In other periods of history, this could lead to accusations of “treason”, but today our sense of personal and collective responsibility is more faded and faint than before. Alternatively, perhaps, there is a level of ultimate responsibility that is darker and runs deeper that the guilt of any one individual.[7]

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