Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Don't Be Fooled By Washington's U.S. Debt Ceiling Debate

Politics / US Debt Feb 15, 2011 - 08:22 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleMartin Hutchinson writes: I have to tell you that - as a former international merchant banker - I want to laugh out loud when I hear the dire predictions of how the United States will have to default if Congress doesn't raise the nation's debt ceiling.

With a little Wall Street-style creative financing - even when the government's outstanding debt level reaches the official limit of $14.3 trillion sometime around the end of March - there's no reason why the country can't go on borrowing as if nothing has changed.

The debt-ceiling debate is something you're going to hear a lot about in the days and weeks to come. The Obama administration just yesterday (Monday) introduced its fiscal 2012 budget proposal - a spending plan that's certain to ignite a firestorm of debate between Democrats and Republicans. And those arguments about next year's spending plan will absolutely feed into a heated showdown over the federal debt ceiling.

But the two sides are arguing about the wrong thing: It's the country's debt load - not the debt ceiling - that has to be addressed. And I can prove it to you.

Like a consumer who's in over his head, Uncle Sam has several alternatives available before his creditors arrive to repossess his vehicles and cut up his credit card. By highlighting some of the "debt dodges" that are available, I will show you that the dire near-term predictions aren't anything to fear. Long-term, however, this country really does need to slash its debt-load. But that requires a real commitment, not political maneuvering.

False Alarm?
U.S. President Barack Obama yesterday introduced his $3.7 trillion budget plan for fiscal 2012, in which he aims to cut the federal deficit to $1.1 trillion next year. The spending plan will jump-start a debt-ceiling debate that's been underway since late last year.

Back in January, U.S. Treasury Secretary Timothy Geithner urged lawmakers to raise the $14.29 trillion debt limit - or risk a government default that would spark "catastrophic economic consequences that would last for decades." In an appearance on Friday, Geithner said it's "essential" for Congress to raise the debt ceiling if the United States is to maintain investor confidence.

Republicans have been calling for deep - and specific - spending cuts in exchange for raising the debt limit. But Geithner said the debt ceiling should not be used as a bargaining chip.

Get ready to watch a major political battle.

But the debt-ceiling debate is just so unnecessary. In the long run, the American taxpayer would be better served by having the Inside-the-Beltway crowd make a real attempt to slash the federal debt load.

In fact, should anyone down in Washington wish to ring me up, I could demonstrate three easy ways to sidestep the debt ceiling - freezing the debt-ceiling debate in its tracks by proving that this looming confrontation is nothing but additional political theater.

Let's look at each of my three debt-ceiling "solutions."

Debt-Ceiling Debate Breakers
Sale and Leaseback: This well-known technique is used by retail chains all over the world. So why not put it into effect on a much grander scale? After all, the United States has some pretty fancy assets, and can raise money by selling them. Naturally, it would not want to lose the use of, say, the White House, or the Smithsonian Institution (with contents), so it would lease the assets back, probably for a very long term.

When the lease runs out - say, in 2061 - America's Chinese creditors would have the right to take over the White House. But, hey, that's business. Needless to say, for such prestigious assets, the U.S. government could extract a premium price. The White House, after all, isn't just another 10,000-square-foot McMansion with a helipad: It has a fantastic view of the Washington Monument and the Lincoln Memorial Reflecting Pool, worth a premium to any self-respecting billionaire buyer.

The only pity is that the United States can't play the ultimate trick with out-of-town buyers by selling them the Brooklyn Bridge - the New York City Department of Transportation owns that.

Subprime Debt: Once the U.S. government has sold and leased back all the assets for which it can find a convenient market, it can roll out a second Wall Street financing technique - the subprime mortgage. Since Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCKO) are technically not part of the government, mortgages guaranteed by Fannie and Freddie don't count as public debt. Hence if the Department of Defense (DoD) wants to buy a new bomber, it sets up a Special Purpose Vehicle (yes, another Wall Street dodge) to own the bomber, then finances it through a mortgage guaranteed by Fannie or Freddie.

You may ask: Why subprime? Surely, the Department of Defense, as an agency of the U.S. government, can be trusted to pay its debts? True, but there's a small problem: Fannie and Freddie are only supposed to lend against housing.

No worries - Wall Street has a solution to this, too: It's called the "no-docs (no-documents) loan." (It also has another name: the "liar loan.")

Back in 2006, a borrower using a no-docs loan to a $700,000 house did not have to note that he was doing so without a job.

Similarly, this time around, the DoD won't have to declare that the asset being financed is a stealth bomber, not a house. To add verisimilitude, instead of naming the bomber "Enola Gay" or "Memphis Belle" or something equally authentic, the DoD can name the aircraft "31 Acacia Avenue" - and perhaps paint its nose a tasteful shade of pastel green. That way, the subprime mortgage that finances it will have just as much reality as the typical subprime loan of 2006 - and a rather better chance of getting repaid, if the Department of Defense comes into some money somewhere along the way.

Quantitative Easing: If Wall Street techniques prove themselves insufficient, the government can still sidestep the debt-ceiling debate by employing some "Bernanke-esque" tactics. Under the second round of quantitative easing, aptly referred to as "QE2," the U.S. Federal Reserve and Chairman Ben S. Bernanke are creating $75 billion each month and using it to buy $75 billion of medium- and long-term U.S. Treasury bonds. That, in itself, does not get around the debt-ceiling limits - the government still has to create the Treasury bonds to sell them to Bernanke.

However, the actual existence of the Treasury bonds is essentially superfluous. Bernanke can achieve exactly the same monetary effect, without the annoying necessity of creating Treasury bonds and blowing through the debt ceiling, by printing $75 billion worth of $100 bills each month - and then driving them ‘round to the U.S. Treasury building in a truck, where "Turbo Tim" Geithner can unload them and use them to pay bills.

It would be quite a trucking job, mind you: $1 million in $100 bills weighs 22 pounds, so $75 billion would weigh 750 tons - roughly 20 full truckloads. That's not an impossible quantity: The deliveries could be made daily, though the times would have to be staggered to foil hijackers.

In any case, this operation, while cumbersome, would represent absolutely no change in monetary policy from what the federal government is currently doing now.

The Uncle Sam Sham
It might be argued that the Wall Street and Bernanke-financing techniques described herein are thoroughly unsound, and are bound to lead to ruin.

But so are the monetary and fiscal policies that the government is right now pursuing.

And anyone who wants proof can just look at the fact that the next big Capitol Hill fracas - after the one focusing on President Obama's budget plan for the new fiscal year - will be a debt-ceiling debate. Instead of all this wheel-spinning and political grandstanding, what the administration and both parties in Congress should be focusing on is the serious long-term budget adjustments and spending cuts that need to be made if this country is to regain its former strength and position of leadership in the global marketplace.

The debt-ceiling debate is shaping up to be Washington's Waterloo moment: It's the debt load - not the debt ceiling - that matters and that must be addressed.

Given how easily a massive debt load can crush the finances (and future) of the person, company or government that has to endure it, it's clear to me that the time to attack and slash those trillions in federal debt is now - not later.

Indeed, this may well be our last chance to do so.

Special Note: Today's issue of Money Morning contains a related story on the Obama administration's budget proposal for fiscal 2012. To access that story, please click here.

[Editor's Note: Money Morning's Martin Hutchinson predicted the global financial crisis - warning investors about the dangers of so-called "credit-default swaps" months before they imploded - and he even "called" the bear-market bottom. Hutchinson then predicted the subsequent bull markets in silver and gold (advising investors to buy gold when it was trading at $770 an ounce).

As an active investor, you have only one question to ask yourself: Why wouldn't I want a guy like that on my side? Well, now you can do just that. With Hutchinson's "Merchant Banker's Alert" advisory service, you can benefit from the financial acumen of the former global merchant banker who's made the afore-mentioned market calls, and who's even given entire governments financial advice. To find out how to put Hutchinson on your side, please click here.]

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules