Daily Lessons from Life 16 May 2011 - US hits debt ceiling, begins pullback

"US hits debt ceiling, begins pullback - AFP 16 May 2011

WASHINGTON: The US Treasury warned of economic catastrophe on Monday as it ran into its $14.29 trillion ceiling on borrowings and began short-term measures to delay breaching the limit.

In a letter to US Senate leader Harry Reid, Treasury Secretary Timothy Geithner said the country had reached the statutory debt limit as of Monday and was initiating a "debt issuance suspension period" to keep from going over it.

Geithner urged Congress to raise the ceiling "in order to protect the full faith and credit of the United States and avoid catastrophic consequences for citizens."

To avoid topping the ceiling, the government would halt the automatic cycling of civil service pension funds into US Treasury debt, the way they are traditionally stored, he said.

The move will give the Treasury about $224 billion dollars of headroom as it meets an estimated $120 billion a month in net new borrowing needs to cover the government's mounting budget deficit.

However, by August 2, according to Treasury projections, spending requirements will exhaust the temporary measures and the government will have to either slash spending on existing obligations or possibly default on its debts.

In a letter to another senator on Friday, Geithner warned that failure to increase the debt limit "would force the United States to default on the obligations, such as payments to our service members, citizens, investors, and businesses."

"Default would not only increase borrowing costs for the federal government, but also for families, businesses, and local governments - reducing investment and job creation throughout the economy," he told Senator Michael Bennet."

This STUPIDITY and INEVITABILITY made prudence, thrift, and not spending beyond what you can afford a BIG sad JOKE!!

Everyone highly educated Americans probably can SEE it coming and YET NOT too many are keen to STOP the rot at the sources!

I am sure the USA government WILL, somehow, after much political wrangling and horse trading and what-have-you, APPROVE to raise the Credit Ceiling of Uncle Sam!!

Lessons for me are:

1. the USA is a BIG JOKE. Really. The one who TRIED to set the financial world on fire with their creativity and innovation and what-have-you to the other less developed or not-developed-enough nations of the world CANNOT even keep to the MOST basic of financial prudence's simple law - live within your mean!;

2. the funny, or sad part, depending on if you have a sense of shame and honor or not, Uncle Sam can, and WILL, get away with spending recklessly with borrowing! It is so big and owed so many countries SO MUCH that the lenders are the ones who trembled and feared that IF they do not continue to lend Uncle Same money, just to pay the interest back, ALL these debts owing to them will be considered non-performing loans and have to be written off to ZERO value!! That will be a BIG loss on their books. So, it MUST be AVOIDED at all costs! Sigh!;

3. the question that become: WHEN will the lenders FINALLY break? When will they finally say: to hell with it! I sill have REAL money with me. Let Uncle Sam goes BANKRUPT! Let them BE what they really are - just a bunch of borrowers who have no money for anything! Will the world's GROWTH grind to a halt? Very likely. The immediate SHORT term impact will be earthshaking like a 20 richter scale earthquake the world has NEVER seen before. Many will die from this trauma. Yet, like many said: if it does not kill you (the fittest survive), it will only make you stronger. I dread the day when the lenders bite the bullet and try to survive the meltdown in order to regenerate a NEW ORDER.

An ORDER that will ONLY live within its means. No credit that is more than 30% and no repeated credit based on the same physical asset or collateral!

Growth will be slow. Hopefully, slow and steady growth means smaller volatility and lesser collateral damages when the gluttons threw up their vomits and soiled the innocent honest living, saving and spending men and women around the world! These people's livelihoods MUST be bigger than that the people of USA!!