US Debt Ceiling 101

Posted | 11/10/2013 / Views | 1969
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Gold and silver dropped last night on the news that there is a short term offer from Republicans to temporarily increase the debt ceiling.  Let’s revisit the US debt situation in simple terms.  The US sells bonds (Treasuries) for fixed terms and pays interest on them.  QE is where it buys its own bonds (Fed buys off Treasury) and they’ve bought a few $ trillion lately.  When bonds mature they are in theory redeemable plus interest but usually are ‘rolled over’ by the owner.  The sad irony is that the US has to keep borrowing to pay the interest on the maturing bonds and more recently buy (redeem) the bonds as China et al have stopped buying them.  Its why we often call it a Ponzi scheme.  So why the IMF and everyone around the world is imploring an increase in the debt ceiling is that without the US issuing more debt it cannot pay the interest or redeem maturing bonds as they fall due and the global economy would collapse.  There’s $441b in Oct and Nov alone and without an increased debt limit they have $30b to spend on 15 Oct… SO… quite frankly a short term reprieve on the debt ceiling is a cheap band aid applied to a terminally ill patient.