Obama says "debt load is unsustainable"
Thursday, May 14, 2009 at 11:45PM “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.” - Barack Hussein Obama, on 05.14.09
Normally, we try to steer clear of politics and prefer instead to focus on the mechanisms of financial and economic markets. However, the following Bloomberg article caught our attention enough to warrant this short post.
In declarations in a town-hall meeting, Obummer said that current debt levels were unsustainable and warned of skyrocketing interest rates for Americans if they continued to finance their deficit spending from foreign countries. He even went as far as to say that holders of US debt will grow "tired" of holding it, which will drive up interest rates for everything from mortgages to student loans. This is a very big statement! What's surprising is that this is actually what will happen. Why would he be so blunt and forthright?
Our take on it is that this rhetoric is meant to prepare the masses for the upcoming surge in long-term rates. What strikes us as particularly dishonest is the notion that there is still a way out of the unsustainable debt level. Even current levels will not be paid off, and even if the Treasury weren't on a massive issuance schedule, holders of long-term debt will grow tired of holding it and will diversify. Another flagrant lie is that healthcare is the main driver of debt, and grossly oversimplies the problem of an over-leveraged economy. To put it more succintly, as the president says, unless the US stops financing its deficit from foreigner, interest rates will skyrocket. This is precisely what will happen because it's nearly impossible to the US to eliminate, or even substantially reduce, the level of foreign financing. The only way out is the USD event horizon that awaits us.
Even more perverse would be if part of the motivation for this series of comments by Obummer was to promote QE. This is less likely than the above explanation in our opinion, but certainly a possibility. After all, if foreigners grow tired of financing the US deficit, the massive debt issuance will have to be absorbed domestically, in large part through QE. This will only accentuate and exacerbate the problems with the debt and yields will rise even higher. In this topsy-turvy world of mind-rattling facts, I wouldn't rule out this possibility for Hussein's speech motivation.
Ultimately, we remind you of our take on rhetoric. Always take it with a grain of salt but do pay attention to it. Every now and then through the useless chatter you'll pick up valuable pieces of info that can guide you on the way to the Truth. In our opinion this is one of them, and it is likely to be meant to prepare the sheep for what's coming, a massive surge in yields and interest rates.
Keep 'em coming Obummer.
May your capital be safe and your investments prosperous!
MAAA
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Reader Comments (3)
I wondered about Obama's motivation for making that statement too. I finally decided it was a prelude to making the case for massive tax increases that go beyond anything he has promised to date.
But, why would he need to call out China by name? I mean, Japan has a lot of Treasuries and infact the Carib zone has more T's than China does but he didnt call them out. This is strange and fishy. To me it sounded as if he just got off the phone with the Premier before making that statement. Taxes or not, Obama will shove it down the american sheeple and its nnot like he needs many excuses for it. Many particpants view americans as complete useless cowards unable to lift a finger and given the level of abuse they tolerate from their sleazebag politicians one can see why.
Forgot to mention that markets didn't react all. Which is even stranger.