Traders Cooperative

[royg1927]

smartome,

Just one man's opinion, FWIW (if anything).

The "deal", for all the talk about cuts, actually does not reduce government spending at all in the first two years, none until 2014. And in no year does it actually cut spending from existing expenditure rates. The "cuts" are from previously published 10 year plans by the administration. A way to think about it is that they are expected to reduce the rate of growth. The hole we are in just won't get deeper as fast.

That seems to mean, if I can do third grade arithmetic, that the annual deficit for next fiscal year, beginning Oct will be similar or larger than the year now ending, i.e. $1.3T (or more, I'm not certain). So a year from where we now sit, the debt will be 14.3 + 1.3 (at least) = $15.6T. If we are about to go busted now at 14.3, what about 15.6? And the same again the following year up to, maybe (for sure?) debt at ~ $17T. I just can't get it through my head how that will be anything other than worse, possibly a lot. Will prespective bond buyers feel more confident of safety in U.S. instruments or not? And on and on throught the rest of the 8-years of this bill.

If there is worry that the debt bonds now outstanding are expected to be beginning to be difficult to roll over as well issue additional amounts, how can that not be a worry? Big time?

There seems to be no secret that at the end of the next 10 years that this deal covers, there will be an additional cululative deficit for those years adding up to another $7T. (not my arithmetic or assumptions. Heard it from both sides of the aisle as well as CBO I seem to recall). Could it be that there is/has been a sort of forest and trees situation at work here, and now awareness of the longer term seemingly inexorable trajectory is being realized?

I think there is a general assumption that when (not if) the economy "recovers" there will result a greater tax stream that will make everything all right. But just maybe. I think I've read/heard reliably that the GDP growth assumptions that include "only" a $7T growth in the debt is based on, like, 5+% annually. So one must judge what the probability of that coming to pass. If not, it seems to me that the arithmetic gets a lot worse. Our first quarter of 2011 was less than 2%

Again, FWIW. Just noodling as to why the market may not be welcoming the signing of the deal. Relieved that the execution squad has been sent home for tonight. But what about the morn?