Wednesday, July 29, 2009

The Bill is Due

We've all been there... or at least I have. You open the mail to find a surprise bill that you cannot afford to pay. Of course it shouldn't be a surprise if you paid attention to where your money was going.

Yes prior to my wonderful wife, and understanding personal finance to ignore the indoctrination of credit companies, I had debt. And a few times I couldn't pay a bill. So like millions, I used a cash advance from another credit card to pay the bill. I was paying ridiculous interest twice on the same balance. Thankfully I learned before getting in real trouble. Some people do this until the cards are all maxed. And why not? It is good enough for the U.S. Treasury.

But the lenders always call for a day of reckoning, and I believe the U.S. Treasury is quickly closing in on their day.

This week the Treasury will have to pay a bill for over $162,000,000,000 (the zeros give dramatic effect). Over $140 billion is from a bond issued in July of 2008. To cover this, the government hopes to get a cash advance (issue new bonds) for over $200 billion. Understandable since next month the Treasury will have to cover $452 billion of maturing bonds.
Now doesn't your credit card feel less painful?

Many were surprised that the first auction of
$42 billion in 2-year notes was not well received forcing the government to reduce the sale price (i.e. increase the interest cost) more than normal to attract buyers. Only 33% of the offer was willing to be bought at the offered rate compared to more than 66% of the $40 billion offering in June. So to get the rest of it sold, they had to increase the rate for everyone. A cash advance from another credit card. Roll it over, but add interest. Today the $39 billion in 5 year notes did even worse. Foreign buying was down to 37% of the offering from last month's 63%.

I think long before this week, the prescient Treasury started to work on their backup plan. And what is the backup plan when the credit cards are maxed out? Well, pay-day lenders are the last step before the loan shark and bankruptcy.

A delegation of 150 Chinese spent the week in D.C. While it was billed as a discussion on matters of commerce, environmental policy, and trade, the primary U.S. delegates were Treasury Secretary Geithner and Secretary of State Clinton.

I wonder if they were asking for a pay-day loan...

We will likely never really know...

It is not like the U.S. can just file bankruptcy, lay out their cards, and have other economic participants bail them out...