Wednesday, June 9, 2010

Mr. Geithner's Report on Federal Debt and the Golden Rule

Click HERE to link to the current Treasury report on the public debt. (This link was ultimately obtained using an intervening link beginning on Zero Hedge.)

During the last two fiscal years, Federal receipts have falled over 18%, and outlays have risen over 27% (pp. 2-3 of the report).

Click HERE for TreasuryDirect's listing of total Federal debt for each completed fiscal year, totaling almost $12 T as of the end of the last fiscal year.

Because of asset purchases such as those via TARP, the first document linked to above mentions that while debt is up, so are assets.

That introductory section was not matched by a parallel statement that the Fannie/Freddie liabilities are not included. And forget about the true present value of Social Security liabilities, which are clearly owed, as opposed to Medicare unfunded liabilities, which are changeable.

An interesting fact(oid) I came across over the weekend is that the total value of all physical gold outstanding is 6% of the value of all financial assets, but was 20% in the mid-1930's and 22% in 1980 (see "The Golden Mean-Interview with John Hathaway"/

And Gallup's hiring/not hiring metric is becalmed in the +8 range. At the end of September 2008, this number was twice as high, and unemployment was rising. After the orgy of firing that followed the financial collapse, we should have seen very high hiring/not hiring numbers under any reasonably healthy economic recovery, but this has not happened.

Gold has been rising in price against all important fiat currencies because governments and their central banks have chosen a financial, debt-based solution to a problem involving too much underlying financial complexity. It's not subtle, unexpected or bubbly.

It's the debt (, stupid).

If and when government stops enriching the financial interests by issuing more and more debt and a simpler system emerges that focuses on real needs of real people, the financial interests will want to make you believe that the world is ending and will mark down the value of financial assets. At such a time of rationality, fiat money may cease depreciating against gold. Till then, the golden rule is in force. Don't borrow money collectively that you wouldn't borrow individually.

Copyright (C) Long Lake LLC 2010

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