Great Ponzi.com

2013-07-30

U.S. Treasury has blown past debt limit; media is silent


Treasury has stopped updating the Total

The U.S. Treasury publishes a Daily Treasury Statement showing federal debt and the current totals. The “Total Public Debt Subject to Limit” has been stuck at $16,699,396,000,000 for 70 straight days. This number is exactly $25 million shy of the legal borrowing limit, and is clearly not being updated any more.

I have verified this myself by looking at older Daily Treasury Statements. This situation has also been observed by Ron DeLegge (etfguide) and Terence P. Jeffrey (cnsnews.com). More importantly, the latter source shows that the U.S. Treasury has issued new net debt in this time period.

This means that the Total Public Debt Subject to Limit is a fake number, and the U.S. Government has in fact exceeded the legal debt ceiling. They are still issuing new debt and just not updating the total. There are extraordinary measures in place now that apparently allow this to happen.

Mainstream media didn't notice, but the bond market did

This is a bizarre situation and while it may not attract attention from the (totally inept) mainstream media, I think the bond market noticed. U.S. Treasury bonds started plummeting in price, driving yields up sharply, beginning in May. There has been a lot of head scratching about why the 10 year bond yield jumped from 1.7% to 2.7% in just two months. This was a vicious move that affected everything from mortgages to dividend stocks. The standard explanations have been (a) the economy is improving, and/or (b) Bernanke hinted at tapering.

The start of that treasury bond sell-off perfectly coincides with the date when the debt limit was first hit, May 17. I am surprised that the media never mentions this connection, considering how important it is. I think that the bond market responded to the debt limit violation.

Implications

The first implication, particularly for foreign investors, is that one can't trust the debt totals published by the U.S. Government. The total has been a fake number for over 2 months, and the Treasury appears to be violating the debt limit. The treasuries market is predicated on faith and trust in the U.S. Government. It's a very bad sign that the borrower is providing fake information. Would you lend money to a company that supplies you with fictitious accounting?

The second implication is that if the bond market has been reacting to this debt ceiling violation, as I suspect, then bond yields could shoot even higher through the rest of the year.

- Perpetual Bull, perpetualbull@gmail.com