There is something surreal and unnerving about the so-called “debt ceiling” negotiations staggering on in Washington. In the real world, negotiations on an increase in one’s debt limit are conducted between the borrower and the lender. Only in Washington is a debt increase negotiated between two groups of borrowers.Kitchen and Chinn's paper (pdf) is called "Financing U.S. Debt: Is There Enough Money in the World – and At What Cost?". This is a topic I've written about here many times, and they unsurprisingly conclude, sure there's enough money in the world. We just need to borrow one fifth of the world's GDP. To quote them directly, the warning is:
Actually, it’s more accurate to call them two groups of spenders. On the one side are Obama and the Democrats, who in a negotiation supposedly intended to reduce American indebtedness are (surprise!) proposing massive increasing in spending (an extra $33 billion for Pell Grants, for example). The Democrat position is: You guys always complain that we spend spend spend like there’s (what’s the phrase again?) no tomorrow, so be grateful that we’re now proposing to spend spend spend spend like there’s no this evening.
On the other side are the Republicans, who are the closest anybody gets to representing, albeit somewhat tentatively and less than fullthroatedly, the actual borrowers — that’s to say, you and your children and grandchildren. But in essence the spenders are negotiating among themselves how much debt they’re going to burden you with. It’s like you and your missus announcing you’ve set your new credit limit at $1.3 million, and then telling the bank to send demands for repayment to Mr. and Mrs. Smith’s kindergartner next door.
Nothing good is going to come from these ludicrously protracted negotiations over laughably meaningless accounting sleights-of-hand scheduled to kick in circa 2020. All the charade does is confirm to prudent analysts around the world that the depraved ruling class of the United States cannot self-correct, and, indeed, has no desire to.
...unprecedented levels and growth of foreign official holdings of U.S. Treasuries will be required to keep longer-term Treasury security interest rates from rising substantially above current consensus projections.But other than that, no problem! No one in another country would ever hesitate at that! I say when we need to borrow about $4.5 billion per day, there's not many places to borrow that. It's more than the GDP of all but about 10 countries, and of those, there's really only three that are likely: the EU, Japan and China. Guess what? They all have their own problems (remember Greece, Italy, Spain and so on? The quake and tsunami? Seen the Shanghai stock market index?). Chances are there won't be as many bonds sold as we need.
The authors’ answer is yes, technically, there is enough money in the world — in the sense that, on current projections, by 2020 all it will take to finance the government of the United States is for the rest of the planet to be willing to sink 19 percent of its GDP into U.S. Treasury debt. Which Kitchen and Chinn say is technically doable. Yeah. In the same sense that me dating Scarlett Johansson is technically doable.and finally,
Unfortunately, neither Scarlett nor the rest of the planet is willing to do it. It’s not 2020 and we’re not yet asking the rest of the planet for a fifth of its GDP. But already the world is imposing its own debt ceiling. Most of the debt issued by the Treasury so far this year has been borrowed from the Federal Reserve. That adds another absurd wrinkle to the D.C. charade: Washington is negotiating with itself over how much money to lend itself.
Meanwhile, the World’s Greatest Orator bemoans the “intransigence” of Republicans. Okay, what’s your plan? Give us one actual program you’re willing to cut, right now. Oh, don’t worry, says Barack Obluffer. To demonstrate how serious he is, he’s offered to put on the table for fiscal year 2012 spending cuts of (stand well back now) $2 billion. That would be a lot in, say, Iceland or even Australia. Once upon a time it would have been a lot even in Washington. But today $2 billion is what the Brokest Nation in History borrows every ten hours. In other words, in less time than he spends sitting across the table negotiating his $2 billion cut, he’s already borrowed it all back. A negotiation with Obama is literally not worth the time.Ready for the kicker? The Kitchen and Chinn paper doesn't include the full debt of the US - just the "on-budget" amounts! It doesn't include social security or medicare, which taken together raise our current debt from 98% of GDP at 14.5 Trillion to $115 Trillion.
As I've said a bunch of times: don't worry, it's not that bad. It's much, much worse.
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