When will borrowing take place?

[ewagner]

Actually a number of questions here:

1. Government borrowing to cover the deficit will most like be borrowed from SS Trust fund right?

2. Borrowing to cover the $87 B for Iraq will have to be done on the open market? T-Bonds of some sort?

3. When do you think the sale of bonds will take place?

I ask this because I assume that the sale of said bonds will have a significant impact on credit markets.

Since I sell health, and life insurance as well as mortgages, all of this is of great curiousity to me.

Thanks in advance.........

[SharonAnn]

1. The huge deficit is AFTER they´ve used up SS funds

so the deficit is actually bigger than we´re hearing. They´re borrowing from the SS funds AND STILL running a huge deficit.

[papau]

2. Financing the debt is done weekly

1. Government borrowing to cover the deficit is borrowed from SS Trust fund automatically. When we say "lockbox" what is meant is that the payroll surplus is "borrowed" for the General Fund who in turn pays down the national debt - thereby making room in the amount of the debt foe any borrowing that will be needed when the SS Fund turns in the bonds the General Fund gave it for its surplus, saying take these back cause I need real cash to pay benefits now. Assuming the General fund eith borrows or raising the FIT tax on the rich beginning in 2018 - when the SS will start to cash those bonds in - SS is solid - in great financial shape forever under the high growth senario and solid to 2043 under the medium growth in the economy senario.

Bush does not want to ever make the rich pay back the tax cuts that the Social Security Payroll tax is now financing for them - let the rich keep the SS money - so Bush says there is a crisis in 2015 to 2018 - meaning getting the money to pay back the bonds will not be done - so the only other solution is to cut SS benefits. Since this might lose votes we get change the system with private accounts - and hidden lower benefits. If equity returns was the answer there is nothing stopping us from investing the SS Surplus in equities - except doing so would mean a huge hit to the capiral markets as the funds are raised to allow the SS fund to own real assets, or a hugh tax increase on the rich to raise the monies to give the Trust fund for its bonds so the Trust fund can buy real equities.

2. Borrowing to cover the $87 B for Iraq will have to be done on the open market? T-Bonds of some sort?

yes

3. When do you think the sale of bonds will take place?

on a weekly basis as needed.

4. ... I assume that the sale of said bonds will have a significant impact on credit markets.

No - there will be only a marginal increase in rates - the capital markets are huge and Gov borrowing is small relatively. However Rubin and Clinton showed how important that slight increase in rates really is -

Folks running a business determine yes/no decisions based on an investment beating a "hurdle" rate - a rate that always starts with current T-bill and gov bond rates - mainly the 10 year rate. Risk that is not rewarded means screw the risk and buy the Gov bond with the cash building up at the bank! So there is then lower capital investment, and the usual feedback/accelerator theories say we now run the economy at a much lower speed than we would otherwise run it.

This not mean we do not get expansion - or low interest rates, but that 4.4% 10 year bond would be maybe be 4.2% with folks anticipating less gov borrowing, and the economy that grew at 4.5% in a year might grow at 5.0% if folks anticipated lower future gov borrowing.

[happyslug]

3. Keep this in perspective.

87 Billion is not that much money. In 1999 the US outstanding Debt exceeded $5 TRILLION Dollars in 1999 (The year Clinton balanced the budget for the first time since 1969. Thus the debt is higher today. Clinton was going to wait till 2001 and President Gore to start to pay down the debt, but we have President Bush and his tax cuts instead)

http://faculty.bus.olemiss.edu/rvanness/Fin%20334/Chpt12.pdf

For a more information on types of bonds see:

http://www.publicdebt.treas.gov/com/combonds.htm

Do not forget Bush's $670 Billion dollar tax cut, money for it had to come somewhere and that was from the sale of T-bonds.

My point is 87 Billion is a minor increase compared to the other disasters President Bush is doing.

[papau]

5. Clinto did pay down the debt - 12/31/2000 is lower than 12/31/1999

the only annual National Debt paydown since the GOP via Nixon came to power.

It is now hidden on the Gov web site - they only show 10/1 to 9/30 numbers.

But you can still see the paydown by going to the monthly spreadsheets.

[TacticalPeek]

4. I heard that this money will actually be "needed" next spring.

So I guess that is estimated borrowing time, adjusting for est. fedgov 'cash flow'.