Bloomberg reported earlier this week that the Treasury Department will sell a record $81Billion in long-term debt next week.  Umm, that’s bad.  More from the article (emphasis mine):

The U.S. Treasury Department said it plans to sell a record $81 billion in its quarterly auctions of long-term debt next week and will replace the inflation- protected 20-year bond with a reintroduced 30-year security.

The Treasury will auction $40 billion in three-year notes on Nov. 9, $25 billion in 10-year notes Nov. 10 and $16 billion in 30-year bonds Nov. 12. The amounts were in line with the median forecast of $80 billion in a Bloomberg News survey of nine analysts.

The U.S. is headed for a second straight year of budget deficits exceeding $1 trillion, and the country’s legal limit on debt may be reached next month. Treasury debt-management director Karthik Ramanathan told bond market participants this week to expect another year of government debt sales of $1.5 trillion to $2 trillion, minutes of the meeting showed today.

A couple of key points about this data:

1. Replacing the 20 year debt with 30 year debt – both instruments automatically adjust to inflation.  They are telling us quite clearly to buckle down for inflation.  No one will buy our debt right now if there isn’t an inflation hedge.  Pushing the payment schedule out another ten years is an attempt to hold down the annual cash outflow…it’s like trying to pay the minimum on your credit card debt just to keep pushing it out.

Contrarian note here: Real estate is a good investment in inflationary times…but then, so is gold.

2. A second straight year of $1T deficits AND the legal debt limit will be reached.  This latter point isn’t that big a deal, it’s not like they will shut everything down and say “sorry you’ve reached your credit limit,” Congress will just vote a new ceiling in.  But it means that they will either have to print more money (inflation), raise taxes (lose jobs) or cut services at a Draconian pace (not going to happen).

Now my question is this: explain to me why they want to pass a healthcare “reform” bill that will add $1.2Trillion to the deficit?  (The $1.2T figure is the Congressional Budget Office estimate – little secret: they have no idea.  Government programs like Social Security, Medicare and Medicaid get passed with the rosiest of scenarios plugged in.)  Here’s another question – why would you pass “cap and trade” legislation that further slows the economy at a time when growth will be desperately needed just to pay our debt?

Waiting for answers…

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