Joe and JoAnn Take a Romantic Walk on the Beach while Analyzing Gov Spending

Right now the US Congress is spending money like a lottery winner in Vegas. (Joe High Roller) Congress is spending 185% of what it takes in (1), and there's currently no relief in sight. (Joe Sahara) This spending spree is leading us down the path of one or two inevitable consequences, neither of which is appealing:

• High Interest Rates: The current spending habits in Congress are simply not possible to sustain. Right now we have plenty of buyers of debt in the form of treasury auctions. However, as the national deficit increases, so does the risk of default, which will cause buyers to flee from the treasury auctions. (Joe bug from Joe Orkin man) Since the US is so heavily in debt already, we depend on the issuance of new debt to cover the principal and interest on the outstanding notes. If the buyers' appetite for our bonds cools off, the government will need to raise bond yields to attract more buyers. Since bond yields go hand in hand with interest rates, (Joe and JoAnn, hand in hand for a romantic walk on the beach....in Joe's head) higher bond yields will consequently raise interest rates of all kinds, including business loans, car loans, and mortgages, and could be a repeat of the 1970's and 80's when interest rates soared to double digits.



• Hyper-Inflation: The government can tap the Fed to just print more money to pay the national debt right? The consequences of simply printing money would be rising prises of goods and services as the national money supply grows. (Joe and JoAnn, romantic walk on the beach....but unable to buy hyper inflated drinks from vendors along the way) Inflation slows the flow of economic growth like a rollover accident during rush hour; and increasing the national monetary supply and inflation are extremely tightly correlated. (Anorexic Joe and diet coke).

How long will the "Risk Free" Rate be risk-free?

The US T-Bond has traditionally been the most trusted investment in the world. It's used as a benchmark for many return-on-investment (ROI) opportunities when companies and individuals compare various investment options. (Joe MBA) Although traditionally a lower yield offering than other methods of investing, (stocks, bonds, commodities, etc) the US T-bonds offer a guaranteed yield, hence the name "risk free", and the investor knows that without exception the interest and principle will be paid with perfect regularity. The problem, as mentioned above, is that we're financing old debt with new debt. Currently, China, India, Japan, Germany, and other countries regularly pitch in to feed our congress' appetite for spending by buying these treasuries. However, if we continue on our current course of spending, the US could face a problem of insolvency as wary investors back off, creating a problem of re-paying the debt that we already owe. If this happens, the "risk-free" rate may not be as the name suggests, and the possibility of default could emerge.

What is to be done? Americans need to voice their concerns about the current federal budget, and the sooner the better. Last week the White House raised its ten year budget deficit estimate to 9 trillion. That's nearly doubling the already astronomically high deficit. At an average of 25-40% taxation rate, Americans are doing our part to pay down the national deficit; but we desperately need Congress and Prez Obama to stop spending money we don't have. (Taxpayer Joe fighting the current) If the government doesn't stop the recklessness, talk of an endangered "risk-free" rate could emerge as more of a realistic problem than anyone wants to admit. All one needs to do is to look at California's insolvency crisis as proof (Joe Shareholder in LA, purchasing drinks for the walk on the beach with Joann....still in his head.....but only from vendors accepting state issued IOU's)