NYT: Wave of Debt Payments Facing U.S. Government

[Winehole23]

Wave of Debt Payments Facing U.S. Government



By EDMUND L. ANDREWS
Published: November 22, 2009


WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.

Graphic The Debt Buildup











But that happy situation, aided by ultralow interest rates, may not last much longer.



Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.


With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan. The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.



The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.


The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”


So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.


The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.



“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”


The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.


“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”


The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.


On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.


Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.

The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.



Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.


The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.


Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.



But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.


The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.



To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.



Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.



This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.



“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.



“Clever debt management strategy,” the group said, “can’t completely subs ute for prudent fiscal policy.”

[coyotes_geek]

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

Bingo. We're basically sitting on one gigantic adjustable rate mortgage that's going to reset within the next couple of years. Probably about the same time the big money expenditures from Obamacare start kicking in. Unfortuantely for us, no one in the present administration is taking any of this seriously.

[Winehole23]

Unfortuantely for us, no one in the present administration is taking any of this seriously.

The opposition in Congress does, at least provisionally. So long as reconciliation rules are off the table, there's a chance the health care reform bill could fail. I hope it does.

[spursncowboys]

The opposition in Congress does, at least provisionally. So long as reconciliation rules are off the table, there's a chance the health care reform bill could fail. I hope it does.

Is your problem with this bill only the cost?

[coyotes_geek]

The opposition in Congress does, at least provisionally. So long as reconciliation rules are off the table, there's a chance the health care reform bill could fail. I hope it does.

True there is opposition that at least cares enough to give the impression of caring. But doubly unfortunate for us, that opposition is a super-minority and one that lacks credibility given how they behaved when they were running things. That being said, I agree with you. I hope they find a way to kill the bill.

[Winehole23]

Is your problem with this bill only the cost?

Not at all. My main problem is that it doesn't tackle cost, waste or quality of care. Besides forcing 20 million people to get insurance and driving the cost up for everyone, I'm not quite sure what this bill does.

[boutons_deux]

"I'm not quite sure what this bill does."

If poor people get primary care rather forced into ER care where taxpayers are already "forced" to pay for uninsured medical catastrophhes, it will save many $Bs.

It should save 10s of 1000s of lives/year, esp babies, but nobody cares about human lives, esp not the right-wing white/"Christian" "pro-life" supremacists.

[Winehole23]

If poor people get primary care rather forced into ER care where taxpayers are already "forced" to pay for uninsured medical catastrophhes, it will save many $Bs.

How will poor people be forced to use the insurance this bill forces them to buy?

[coyotes_geek]

"I'm not quite sure what this bill does."

If poor people get primary care rather forced into ER care where taxpayers are already "forced" to pay for uninsured medical catastrophhes, it will save many $Bs.

Supporting do entation please.

[Winehole23]

If b_d wants to say ER visits will be cheaper with more people insured, I'll buy that. It doesn't convince me this bill is worth it, but as a talking point it's plausible.

[Winehole23]

By forcing everyone, including the young and relatively healthy, to obtain medical insurance if they are financially able to do so, spreads the risk over a larger number of people , hence, theoretically at least, lowering the premium costs per individual.

Aye, there's the rub. As currently constructed, the CBO thinks this bill will result in rising premiums. The devil's in the details. Preventing rescission has downsides.

What part of 'doing nothing means insurance premiums will double again over the next 7 years as they have doubled over the last seven' meaning that they are increasing at an unsustainable rate for us ALL, do you not get?

I strongly agree that medical costs have been rising at an alarming rate and that doing nothing will make health care and insurance even more unaffordable than they are now. However, I disagree that the bill before the Congress does very much to make health any care cheaper, much less to control costs on the long run.

[coyotes_geek]

If the democrats thought that this bill would lower costs they'd be out there bragging about it non stop. They'd also be using those estimated savings to offset the cost of the bill. But they're not doing either of those things. Any mention of the words "cheaper" and "affordable" have all but vanished and now it's just "reform".

There have been several reports and estimates as to how much money we'll have to spend on this thing, but I have yet to see a single one telling us how much money we'll save. All the costs are hard numbers that have been defined. All the "benefits" are vague, conceptual and theoretical. Basically all I see is a plan where we commit to spend a boatload of money and then we cross our fingers and hope that we get something in return.

[boutons_deux]

"Supporting do entation please"

Poor people waiting until their disease becomes chronic or organ-destroying before going to the ER is MUCH more expensive FOR TAXPAYERS (who ALWAYS pay either way) than if they have access to (and use) primary care.

I mentioned earlier a public health care doctor in SA on the SA radio saying for every $1 spent on his free service providing care to poor people saved $20 in ER care later.

Although the huge number of seriously overweight and morbidly obese Hispanics and blacks in SA says these people have no clue about how to care for themselves (even ST fatties in the GTG photos are pretty scary), I really do think some kind of "health outreach" could get to these people, who I really think don't want to spend the rest of their lives with, eg, diabetes, missing toes, feet, legs, kidneys.

Multi-generational poverty has been a hard nut to crack, and I guess health- and nutrition ignorance in the poor and general population will also be hard to crack.

What's great about health-ignorance (compared to poverty) is that disease is a huge money spinner for the health-profit industry, so I guess we should be grateful for so many diseased Americans driving our economy and sucking up taxpayer dollars. And of course, the food corps are great beneficiaries also, from Americans overeating.

America The Beautiful, Freedom to give yourself disease with ty, pathogenic corporate products is a wonderful freedom.

[boutons_deux]

Here's the CBO, the same one GOP loves to quote saying health care refore will cost $1T, saying the health care will actually save $100B+

http://www.huffingtonpost.com/david-...tml?view=print

All the $Ts in the USA for making bull GOP wars, but don't ever try to spend money on Americans (esp black and brown Americans).

[coyotes_geek]

Here's the CBO, the same one GOP loves to quote saying health care refore will cost $1T, saying the health care will actually save $100B+

http://www.huffingtonpost.com/david-...tml?view=print

All the $Ts in the USA for making bull GOP wars, but don't ever try to spend money on Americans (esp black and brown Americans).

We only "save" $100 billion by cutting medicare and medicaid reimbursements tto doctors and the states by $400 billion. It's just one level of government sticking another level of government with the tab. While the federal government is boasting to the people "look how great we are, we saved $100 billion dollars" the states are collectively asking themeselves "where the are we going to come up with $400 billion dollars?" In the end, we're not coming out ahead.

[coyotes_geek]

"Supporting do entation please"

Poor people waiting until their disease becomes chronic or organ-destroying before going to the ER is MUCH more expensive FOR TAXPAYERS (who ALWAYS pay either way) than if they have access to (and use) primary care.

I mentioned earlier a public health care doctor in SA on the SA radio saying for every $1 spent on his free service providing care to poor people saved $20 in ER care later.

Sounds nice conceptually, but that's still nothing in terms of actually quantifying whether or not this is going to end up being a good deal for us.

Although the huge number of seriously overweight and morbidly obese Hispanics and blacks in SA says these people have no clue about how to care for themselves (even ST fatties in the GTG photos are pretty scary), I really do think some kind of "health outreach" could get to these people, who I really think don't want to spend the rest of their lives with, eg, diabetes, missing toes, feet, legs, kidneys.

People aren't interested in health outreaches. We all know full well that eating junk food, excessive drinking, smoking and being a couch potato isn't as healthy as eating right, drinking in moderation, not smoking and excerising. We just don't care. Preventative care isn't some new concept that just got invented this year. It's been around. We're just not interested.

[spursncowboys]

We only "save" $100 billion by cutting medicare and medicaid reimbursements tto doctors and the states by $400 billion. It's just one level of government sticking another level of government with the tab. While the federal government is boasting to the people "look how great we are, we saved $100 billion dollars" the states are collectively asking themeselves "where the are we going to come up with $400 billion dollars?" In the end, we're not coming out ahead.

Good point and I think that might be the reason why they took out the state's ability to option out of it.

[spursncowboys]

Sounds nice conceptually, but that's still nothing in terms of actually quantifying whether or not this is going to end up being a good deal for us.



People aren't interested in health outreaches. We all know full well that eating junk food, excessive drinking, smoking and being a couch potato isn't as healthy as eating right, drinking in moderation, not smoking and excerising. We just don't care. Preventative care isn't some new concept that just got invented this year. It's been around. We're just not interested.

If doctors had an incentive or a Pay for Performance. "The main premise to Pay for Performance is that physicians will have an incentive to perform well, because their pay will be directly correlated to their performance. For example, physicians will receive a bonus for getting a certain number of their diabetic patients' blood sugar levels under a stipulated amount. This serves as a benefit to patients overall because physicians will now have an incentive in finding the root cause of their diseases/ailments versus treating symptoms which generally brought in more money. The affects that an ineffective healthcare system has on the economy is vast, which is why I have only touched on a small aspect of it." -n/a

[coyotes_geek]

If doctors had an incentive or a Pay for Performance. "The main premise to Pay for Performance is that physicians will have an incentive to perform well, because their pay will be directly correlated to their performance. For example, physicians will receive a bonus for getting a certain number of their diabetic patients' blood sugar levels under a stipulated amount. This serves as a benefit to patients overall because physicians will now have an incentive in finding the root cause of their diseases/ailments versus treating symptoms which generally brought in more money. The affects that an ineffective healthcare system has on the economy is vast, which is why I have only touched on a small aspect of it." -n/a

That's an interesting idea. Personally though, I think the junk food tax is the way to go. Tax junk food and alcohol the same way we tax cigarettes and then at the end of each year take the proceeds and divvy them up equally to every taxpayer in the form of a health savings account which they can use towards insurance premiums, copays, prescription meds, etc.

[Nbadan]

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

There is the real travesty.....but as you know, debt is money creation in the U.S., so the U.S. has created trillions of 'new' dollars, that money is not just going to disappear, at least not all of it, it will be circulated in the economy generating billions if not trillions of new tax and fee revenue for the govt, which makes a $700 billion dollars annual intrest cost in 2019 much more palatable...the only kink in the system is inflation...

[coyotes_geek]

There is the real travesty.....but as you know, debt is money creation in the U.S., so the U.S. has created trillions of 'new' dollars, that money is not just going to disappear, at least not all of it, it will be circulated in the economy generating billions if not trillions of new tax and fee revenue for the govt, which makes a $700 billion dollars annual intrest cost in 2019 much more palatable...

It's so simple. We can just pay our bills with money we create out of thin air.

the only kink in the system is inflation...

Sort of like how the only kink to putting a loaded gun to your head and pulling the trigger is getting shot.

[elbamba]

If doctors had an incentive or a Pay for Performance. "The main premise to Pay for Performance is that physicians will have an incentive to perform well, because their pay will be directly correlated to their performance. For example, physicians will receive a bonus for getting a certain number of their diabetic patients' blood sugar levels under a stipulated amount. This serves as a benefit to patients overall because physicians will now have an incentive in finding the root cause of their diseases/ailments versus treating symptoms which generally brought in more money. The affects that an ineffective healthcare system has on the economy is vast, which is why I have only touched on a small aspect of it." -n/a

A physician cannot lower a patient's blood sugar levels anymore then a concerned parent or spouse can. It is up to the individual to change their diet, take their medication, exercise and lead a healthier life style. I know that I do not need a physician to tell me these things because I know them already. All I would go to a doctor for is to check my levels and see were I stand right now.

[elbamba]

That's an interesting idea. Personally though, I think the junk food tax is the way to go. Tax junk food and alcohol the same way we tax cigarettes and then at the end of each year take the proceeds and divvy them up equally to every taxpayer in the form of a health savings account which they can use towards insurance premiums, copays, prescription meds, etc.

This is not a bad idea. Junk food and soda are every bit as dangerous and addicting as tabacco.

[Nbadan]

It's so simple. We can just pay our bills with money we create out of thin air.

All money is created out of thin air.

[Nbadan]

Sort of like how the only kink to putting a loaded gun to your head and pulling the trigger is getting shot.

The danger now is that as the U.S. and world economy starts cranking again that there will be too many dollars chasing too few goods, but for the foreseeable future, that doesn't seem to be too big a concern...the alternative is unconsciousable though...