The policy of record debt financed spending in the US continues…
From CNSNews.com (hat tip Sovereign Man)
By the end of the third quarter of fiscal 2012, the new debt accumulated in this fiscal year by the federal government had already exceeded $1 trillion, making this fiscal year the fifth straight in which the federal government has increased its debt by more than a trillion dollars, according to official debt numbers published by the U.S. Treasury.
Prior to fiscal 2008, the federal government had never increased its debt by as much as $1 trillion in a single fiscal year. From fiscal 2008 onward, however, the federal government has increased its debt by at least $1 trillion each and every fiscal year.
The federal fiscal year begins on Oct. 1 and ends on Sept. 30. At the close of business on Sept. 30, 2011—the last day of fiscal 2011—the total debt of the federal government was $14,790,340,328,557.15. By June 29, the last business day of the third quarter of fiscal 2012, that debt had grown to $15,856,367,214,324.44—an increase for this fiscal year of $1,066,026,885,767.29.
In the fourth quarter of fiscal 2012, the federal debt has continued to accumulate, hitting $15,874,365,457,260.40 at the close of business on Thursday, July 19—marking a total increase so far in fiscal 2012 of $1,084,025,128,703.25.
In fiscal 2007, according to the U.S. Treasury, the federal government’s debt increased $500,679,473,047.25. But that marked the last fiscal year in which the federal government's debt did not increase by at least $1 trillion.
In fiscal 2008, the debt increased $1,017,071,524,650.01. In fiscal 2009, it increased $1,885,104,106,599.26. In fiscal 2010, it increased $1,651,794,027,380.04. And in fiscal 2011, it increased $1,228,717,297,665.36.
So far this fiscal year (which is a leap year of 366 days), the Treasury has increased the net debt of the federal government at an average rate of $3,699,744,466.56 per day. If that average were to hold up for the 73 days that remained in the fiscal year after July 19, the debt would increase in fiscal 2012 by a total of $1,354,106,474,762.13—a greater increase than last year.
At the close of business on Sept. 30, 2007--which marked the beginning of fiscal 2008--the total debt of the federal government stood at $9,007,653,372,262.48. At the close of business on July 19, it stood at $15,874,365,457,260.40--an increase of $6,866,712,084,997.92 in less than five years.
I find the argument of a sustained low interest environment from the intensifying growth of the current level of indebtedness as specious reasoning.
Japan in the 90s or the Great Depression days of the 1930s signify as apples to orange comparison for the simple reason that current degree of indebtedness has been global and has been unprecedented.
Again one cannot count on history alone (e.g. Reinhart-Rogoff) as an accurate roadmap for the future as everything will depend on how such dynamics will be dealt with. Will the growth rate of debt based political spending continue? Who will finance these? And up to what extent? If funded by central banks up to what point before (consumer price) inflation surfaces and becomes an economic menace (stagflation, if not hyperinflation)? Will governments strangulate the economy with more repressive regulations or will governments undertake “shock liberalization” (J. Cochrane)?
The current scale of debt implies that these countries will be competing with each other for limited savings from residents and non-residents for financing. (chart from Zero Hedge)
This is why we are seeing a crisis in the Eurozone…
…a crisis that will likely spillover to the rest of the nations encumbered by huge liabilities.
For crisis affected PIIGS, obviously a low interest rate regime has gone pfffftt. This is the revenge of the bond vigilantes.
The (liberal) counterargument will say that the crisis stricken PIIGS doesn’t have the same ability as Japan or the US to print their own money. That’s unalloyed hogwash.
Any argument that sees printing money as a way to prosperity IS delusional. Eventually such craving for the philosopher’s stone will be exposed for what they truly are: a fraud.
As the great Ludwig von Mises warned,
The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last.
Interest rates will eventually rise (everywhere) to reflect on either the disproportional distribution or imbalances between the level of savings and debt OR an inflationary surge (or perhaps even both). There is no such thing as a free lunch.
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