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Indybay Feature
Review of US Treasury Operations, Dec. 2004
by Enquiring Minds
Thursday Dec 16th, 2004 10:34 AM
A look at the December 2004 "FINANCIAL OPERATIONS" report from the U.S. Treasury provides clues to Enquiring Minds about items of interest to the typical reader of (a web site whose respectability is growing at a rate inversely proportional to the respectability of the U.S. government under George W. Bush.)
A look at the December 2004 "FINANCIAL OPERATIONS"
[ ]
report from the U.S. Treasury provides clues to
Enquiring Minds about items of interest to the
typical reader of (a web site whose
respectability is growing at a rate inversely
proportional to the respectability of the U.S.
government under George W. Bush.)

1) Enquiring Minds want to know about the Social
Security trust funds that have been used as
general revenues by the government, which seems
to have neglected its fiduciary responsibilities.

2) Enquiring Minds also want to know why interest
rates are so low in spite of increasing inflation
and massive budget and trade deficits that are
hemorraging red ink on the once pristine balance
sheets of American government.

3) Enquiring Minds want to know why "illegal"
immigration persists in the face of much advertised
concerns about "homeland" security. The new
Intelligence Reform law appears to be greatly
concerned about establishing the authenticity of
identification papers of existing American citizens
and the Federal government's authorization to
surveil the day to day activities of those citizens,
overtly and covertly. Why the disconnect we wonder
between obsessive concerns about what American
citizens are doing and blatant neglect of the
"illegal" inhabitants of the United States?

December 2004's Financial Operations report provides
clues only. And as an amateur sleuth in both financial
and governmental matters I can only point out
curiousities; I cannot point the Finger of Judgement
at anyone.


Page 29, Table FD-1 - Summary of Federal Debt

We see that in 2004 total outstanding debt has
grown to $7.4 trillion, up from $5.7 trillion
in 2000. Of the total, $3.1 trillion is held *in*
government accounts and $4.3 trillion is held by
"the public".

(It should be noted that US government debt held
*in* government accounts amounts to an I.O.U. from
the Republican and Democratic parties to the
American people. Or in plain terms, they took your
money, laundered it, gave it to their contributors
and updated their database with electronic
promises to pay something to someone, some day,

Page 32, Table FD-3 - Government Account Series

We see in table FD-3 the composition of the $3.1
trillion of U.S. government debt held *in*
government accounts. They are comprised of various
trust and insurance funds, such as the Federal
Old-Age and Survivor Insurance Trust Fund -- which
has grown to $1.5 trillion in 2004 from a mere
$.89 trillion as of 2000.

Page 34, Table FD-5 - Maturity Distribution and Average
Length of Marketable Interest-Bearing Public Debt
Held by Private Investors

Table FD-5 shows us that since 2000, the average
maturity (length of debt) has decreased from 6 years
and 2 months to, as of 2004, only 4 years and 11
months. Thus, the government is retiring old,
high-interest debt and borrowing more and more
short-term "Greenspan" money at artificially low
interest rates (this helps reduce the budget
deficit, for now...)

BUT...notice that they are not providing information
about the average maturity of the non-marketable
securities, the trust fund monies. Perhaps that
data is available elsewhere? One would hope that
the money held in trust is earning high interest
rates rather than Greenspan rates...

Page 44, Table PDO-1 - Maturity Schedules of Interest-Bearing
Marketable Public Debt Securities Other Than Regular
Weekly and 52 Week Treasury Bills Outstanding Sept. 30,

This table does not include the non-marketable IOU's
issued by the Feds to the Social Security Trust Fund.
A quick perusal of the data shows that the vast
majority of this debt comes due in 2004, 2005, and 2006.

The typical person with an Enquiring Mind will surmise
that the Federal Government is acting in its own
rational self-interest by taking advantage of Alan
Greenspan's artificially low interest rates to fund
its ongoing operations (of looting the treasury...) But,
the government's rational self-interest may be in direct
conflict however, with its fiduciary responsibilities
to the (hypothetical) beneficiaries of government
trust funds (the public).

Page 55, Table OFS-1 - Distribution of Federal Securities
by Class of Investors and Types of Issues.

We see that nearly all -- all but $.14 trillion of
U.S. debt held *in* government accounts is in the
form of non-marketable securities (the infamous
electronic "promises to pay somebody, something,
some day, maybe.")

Page 57, Table OFS-2 - Estimated Ownership of U.S. Treasury

We see that in 1993 the Federal Reserve and Government
Accounts held only 1/3 of the total public debt, which
amounted to $4.2 trillion. As of 2004 however, this
proportion has ballooned to nearly just more than half
of the $7.4 trillion in U.S. debt.

One might conclude that the government has been spending
more and more and more of the "trust funds" entrusted to
it by the public. The 13% combined employee and employer
contributions to Social Security -- taken off the top
of every paycheck -- are increasingly important to the
government's various extravaganzas and adventures, not
to mention the recylcing of those "contributions" back to
the corporations :)

Page 64, Table IFS-2 - Selected U.S. Liabilities to Foreigners.

This table is pretty opaque, but it appears that liabilites
to "foreigners" have grown from $2.6 trillion in 2000 to
$4.5 trillion as of 2004.

Not good!


1. We have learned that the government increasingly relies
upon trust fund money to pay for its ongoing "operations".
The electronic IOU's are growing, but never seem to satisfy
the beast, and at this point, the whole putrid thing reeks
to high heaven.

2. *IF* $7.4 trillion in debt can be rolled over at 1% the total
cost would be only $74 billion a year in interest payments.
But at 5% the total interest payments would reach $370
billion a year. And *IF* the U.S. dollar were to collapse
causing runaway inflation and high interest rates of 10%,
the total interest on that debt would reach $740 billion a
year (eventually, after rolling over.) Obviously, the
Feds would prefer to pay the $74 billion in interest,
but that conflicts with their trust fund fiduciary
responsibilities. They have promised to pay inflation
adjusted benefits decades into the future, so they cannot
simply invest the trust money at 1% interest and hope to have
enough left in the trust funds in future years. Obviously,
the $3.1 trillion of debt held *in* government accounts
is a problem for them -- they don't want to pay high
interest on it!

3. Interest rates are set to a large degree by the market,
and the cost of borrowing money is a function of supply
and demand. The availability of Social Security tax
receipts reduces the supply of government debt (the
Feds can spend the money without having to borrow in
the market.) Since the "trust" funds are maintained
in the form of non-marketable securities, the impact
of all of this debt does not impact the supply/demand
curve for treasury debt!

Reduced supply of Grade AAA debt means higher prices
for the debt instruments, and therefore lower interest
rates! And the only reason the U.S. still *has* a
AAA credit rating is that the market understands
that the "trust" funds will be devalued or inflated
away, or that the government will renege in some
way, shape or form. You can bet that marketable
treasury bond interest will be paid out, but betting
that when you retire your Social Security check
will be valuable is an unwise bet!

Also, in recent years the Feds have stopped issuing
30 year bonds and have shifted borrowing to short term
debt to take advantage of short term "Greenspan"
money. This also has had the effect of reducing the
supply of longer term debt, thus keeping long term
interest rates lower than they would otherwise be.
Foreign purchasers of U.S. debt, like the Japanese
and Chinese governments have also helped fund the
U.S. debt, thereby keeping interest rates lower
than they would otherwise be if the government were
required to run a clean, frugal shop and honestly
account for trust fund monies and ongoing expenditures.

4. Now that the Fed has increased the Fed Funds rate to
2.25% (estimated to be at 4% by year-end 2005), the
Treasury's policy of borrowing short term to save
money on interest costs will start to backfire. All
things being equal, a 1% increase in interest rates
across the entire spectrum of maturities would
increase Federal interest payments by $74 billion.
Coincidentlly, this is identical to the average price
of a George W. Bush brain fart, and since he is
extremely profligate and mentally flatulent, the
government will increasingly find itself borrowing
more and more just to pay interest on what it has
already borrowed. Unless something else happens...

5. To minimize future payments of electronic IOU's
to beneficiaries of Social Security and other
trust and insurance funds, it is in the rational
self-interest of the people that inhabit/rule the
Federal government to devalue the U.S. dollar.
At the same time they must continue to keep inflation
low by depressing wages paid to American workers,
hence the need for "illegal" immigrants. And they
must do a few other things to navigate the
treacherous future they have planned without
capsizing their yachts: 1) they must increase the
American population so that the tax base grows
in spite of depressed wage levels; 2) they must
gradually psychologically prepare the sheeple for
a partial or complete renege on the government's
electonic IOU's.

For the Bush "Ownership Society", devaluation of
the U.S. dollar is not a problem. The wealthiest
and most important members of his society own
"things", such as land that will retain value even
as the paper currency's value approaches zero
over the long term. (This provides considerable
insight into why "they" consider it so vital
to eliminate inheritance taxes.) Nor do the
ownership elite particularly care about their
Social Security accounts -- the sums involved
are miniscule in relation to their net worth.
And finally, should unforeseen events develop,
the rulers of the Ownership Society, the
corporations and the mega-wealthy retain the
right to alter the "laws" and regulations so that
they retain their privileged and comfy positions
that don't seem to involve much actual "work".

(An unrelated side note: George W's coronation
in January will cost something like $40 million,
not counting security costs. The 4 day celebration
will honor George W. as well as the armed services.
Isn't it nice to know that America still knows
how to throw a party cheaply? A mere $40 million
to honor our President! And most of the money,
not counting security, will be paid by Bush
Pioneers and his corporate backers, so you have
to be happy that for 4 days at least, the
Treasury will be safe -- everyone will be partying
instead of looting!)

P.S. Regarding "illegal" immigration. The term is
an oxymoron since the government decides what
is legal and illegal. If the government allows
it, it is legal, otherwise it is illegal. Ergo,
"illegal" immigration does not exist. With
annual cash outlays of $500 billion for "defense",
not counting "homeland" security and law
enforcement, if the borders are porous, they
are porous by design.

Personally, I am happy to share America with
people from Mexico, China, Russia, and other
countries. I do wish the flows were two-way
so that, as befits our Land of Free and Brave
people, the people could be as free to move
around as the money and products move! I like
everyone, but some people I like more than others.
I would happily accept 1 "illegal" immigrant for
1000 Bushes and Clintons (he or she can stay at
my house!)

The "illegals" are not the problem, at least
from where I sit!

The politicians and the Federal government are
the real problem, which is why I would like to
see much more emigration! I would say to
Mexico, "If you accept all of our politicians and
political operatives, we will happilly accept all
of the people in your country that want to live here!"
The only problem with that is that if we sent
Bush and the other pols to Mexico, then soon
Mexico would become a rogue state and a dangerous
threat to world stability and prosperity!
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