Treasury Borrowing Advisory Committee Report: Here Comes the Death Spiral

The Treasury Borrowing Advisory Committee reportis out and it's nasty.

The key is here:

[Click all to enlarge]

The OMB, by the way, projected $5 trillion in surpluses in 2000. That is, a net debt of near zero over 10 years. Do you think that's a bit optimistic compared to reality?

Instead we doubled the debt. Which, incidentally, was a doubling from 1990 too. And, I might add, that was roughly a doubling from 1980.

Welcome to compound function hell.

How many times do you really think you can do this? Again? Really? Oh, incidentally, the World Economic Forum said that on a global level we have to do it again -- to the tune of $100 trillion in new debt within the next nine years.

Let's look at the systemic level:

Uh huh. We're going double it again? We did it three times. We hit the wall in 2007, which is why the recession happened. What makes you think we can keep borrowing and spending and not run right into that wall again?

The really awful news is in here. Interest payments rise, according to OMB projections, from about $180 billion to over $800 billion in 2020.

No way.

The budget is about $3.7 trillion. Of that we take in about $2 trillion in taxes. The rest is being borrowed at present. There's no way we can possibly put more than 20% of federal revenue toward interest, and this presumes a 3% interest rate on that debt, which is insanely optimistic after we manage to pile on another double. If we get a Greece-style response and rates shoot upward ... well, you can forget about it.

We won't get there, folks. It's not possible. The market won't allow it and The Fed can't control it.

Worse is this picture:

That graph probably ought to be titled "How do you avoid a treason charge?"

No, not today. We're not at war. But in the future we're damn-near certain to wind up in one with this chart, and the bad news is that it will come about as a consequence of that foreign ownership and their reaction when the reality strikes that we cannot pay.

You want to see real idiocy? Here it is:

Note carefully the "insurers/pension" category. Do that and the 8% return they're counting on turns into 3% (or the Treasury detonates, since that's the OMB baseline expectation). But if they only get 3% or 4%, then every pension fund in the United States detonates instead.

There's plenty of arm-waving in the presentation that is all an attempt to claim that "we can make this work."

No, we can't. The budget deficit has to be brought negative, and this means a cut in federal spending by 50% ... which, incidentally, only takes spending back to 2000 levels.

We don't have a choice, folks; we have to do it now.

We must get rid of fully half of all federal spending and we must run a primary budget surplus including all off-balance sheet items such as Social Security and Medicare.

I know nobody wants to hear it, but that doesn't matter. It has to happen. If it doesn't, and there's no evidence that it will, then at some time well before the 2020 line is reached the market will come to the conclusion that we will not fix the problems.

On the day that happens, yields will ratchet and the spiral -- the last one -- will begin.