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U.S. Treasury Exceeds Debt Limit by $39 Billion with Accounting Trick


U.S. federal debt has been stuck at $16,699,396,000,000.00 for four months and that amount is exactly $25 million less than the legal borrowing limit of $16,699,421,000,000.00 set on May 18, 2013. But that’s only part of the story.

A closer look at the latest numbers actually shows the U.S. Treasury has already overshot the federal legal borrowing limit, with the help of accounting tricks.

The table below shows how “Total Public Debt Outstanding” is now $38.48 billion above the statuary debt ceiling and currently at $16,738,483,000,000.00. You'll also notice, how the Treasury has itemized this $39.08 billion as "not subject to the debt limit." This technique is known as "creative accounting." 

The yield on 10-year U.S. Treasuries (^TNX) has surged 49% year-to-date and that move has taken the 10-year yield from 1.83% to 2.72%. And bond investors, especially owners of long-term debt, are bleeding. 

AUDIO: Should you buy floating rate bonds?

The Federal Reserve has joined the chorus of bond losers, courtesy of its massive Treasury holdings (NYSEARCA:TLT). For every 0.01% rise in interest rates, the Fed suffers paper losses of approximately $3 billion. The Fed's Sept.18 decision to continue with massive monetary stimulus or "QE" isn't just about helping the economy, as it alleges. It's also about salvaging its bond portfolio.

When bond yields rise, as they have been, bond values fall. And we've advised our readers to capitalize on this trend.

Leveraged short Treasury ETFs like the ProShares UltraShort US Treasury 20+ Bond ETF (NYSEARCA:TBT) and the Direxion Shares US Treasury 20+ 3x Bear Shares (NYSEARCA:TMV) have jumped between 15% to 21% over the past six months. TBT and TMV aim for double and triple daily opposite performance to long-term Treasury bond prices. Meanwhile, the total U.S. bond market (NYSEARCA:AGG) has lost around 3.25% while long-term U.S. Treasuries have fallen 10% over that same time frame.

If the U.S. Treasury has already subversively exceed its legally mandated borrowing limit, then the upcoming debt debate is nothing more than a dog and pony show.

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P.S. Our just released October 2013 newsletter covers the falling precious metals market, our mega investment theme report, and our popular global equity map. 

CommentsAdd Comment

Russell Sanderson said on September 27, 2013
  People look at $17 trillion as if that's the "storm on the horizon"; few talk about the $124 trillion in combined unfunded liability for Medicare, Medicare Part-D (prescription drug benefit) and Social Security. That is the tsunami behind the storm, and it's rushing to shore!
LOB said on September 22, 2013
  Under the Westminster system of government they have to approve the budget when they approve the spending. I do not understand the US system.
TrainWreck said on September 20, 2013
  Every time they "cut" spending in one place, they find a way to raise it in another. Foreign creditors will eventually wake up to the realitity of the situation by selling their Treasuries and demanding higher interest rates on all of this debt.

BTW, where are all those idiot credit rating agencies like Moody's, Fitch, and Standard & Poors? How come none of them have enough sense or guts to immediately downgrade US debt like it should've been 6 months ago?
PlattedU said on September 20, 2013
  Don't forget to add another $70-$80 trillion to the tab for medicare, SS, and other government sponsored entitlement programs.
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