My debt prediction

The costs of our new reduced debt rating will cancel out the savings of any eventual debt deal during this debacle.

Remember each 1% (100 basis point) increase in debt costs eventually adds about $150 billion per year to our interest costs. That’s $1.5 trillion over 10 years (since this is how our politicians are talking about cuts). So my prediction means our borrowing cost will increase by 1.66% (166 basis points). Seems quite reasonable.

The “10 year reduction” that we need to get to a balanced budget was previously $10.5 trillion over 10 years. The new “10 year reduction” is likely to be closer to $13-14 trillion.

Apple has more cash than Uncle Sam

From 9to5mac website:

A certain Cupertino, California consumer electronics powerhouse has more cash on its hands than the cash-strapped US government which is struggling to raise its debt limit before the August 3 deadline and avoid a default at the same time. Business Insidernails it down, saying “the world’s largest tech company has more cash than the world’s largest sovereign government”. Apple sat on a cash pile of $76.2 billion at the end of the June quarter, the sum which is comprised of cash, cash equivalents and marketable securities. Per this statement from the US Treasury, the government had an operating cash balance of $73.8 billion at the end of Wednesday, July 27. . . . And unlike the US government which owes a lot of money to creditors, Apple owes nothing to banks and has paid its debts in full.

Budget deal will still increase debt from $14 trillion to $20 trillion

The short, simple facts of the current budget impasse are these three:

FIRST:  Foreign debt is not at risk of default.  Even if the debt ceiling is not raised, the federal government will furlough it’s own workers first. Then, it will short change the elderly via their social security and medicare payments. Then, it will start to extend IOUs to the military. Then, and only then, will foreign debt be touched. For anyone who has ever shut down a company (and as a VC I’ve done my share), this is called a seniority stack. Certain parties always get paid first when the money is tight, and my prediction is foreign debt is the highest priority.  And we have enough income to pay it.

So shut up already about debt default.  Instead, you can talk all you want about stiffing our elderly and military.  That’s still bad enough.

SECOND:  T-bills are no longer the safest investment in the world.  Despite the fact that we will pay our foreign debt, the debate itself has caused enough concern that we will face a likely downgrade in our credit rating.  We’re just introducing too much uncertainty and lack of responsibility.  That’s a first for the US since ratings were started.  That makes our debt more expensive.  Every 1% increase in interest — that’s 100 basis points — costs us $140 Billion from our annual federal budget.  That’s about the size of food stamps, the State Department, and the Justice Department (which includes, courts, the FBI, and border protection) combined.  That’s just for 1%.  Not only does it crowd out Federal programs, it’s likely to reduce GDP by 1%, too.  Terrific.

Don’t go thinking a downgrade is no big deal.  A downgrade is bad, just ask Ireland.

THIRD:  None of the budget proposals reduce the debt.  Estimates of savings over the next 10 years of $4 trillion ignore the fact that the Congressional Budget Office expects debt to increase by $10.5 trillion over the same period.  So our total debt will still grow from $14 trillion to $20 trillion.  Recall, in DC parlance, an increase that is a less than a predicted increase is called a cut.  Everywhere else we call that “a bold-faced lie”.

So, not only have we already screwed up, all the fixes on the table don’t fix the long term problem.

At least it’s now a topic of debate, but if this deal does get done, we’re not out of the woods.  We can’t let up and go spend our time arguing about incandescent lightbulbs.  In fact, we still don’t have a flashlight, or a map, or breadcrumbs in this here forest.  Meanwhile, it’s getting quite dark, and rainy, and cold.

Seriously, write your Congressman.