We talk a lot about the economy in abstract terms.
On the other hand, many of us are well-versed at going over a prospectus and Jim Grant of the Interest Rate Observer has put one together for the Untited States of America as it seeks to raise $16Bn for 30-year Treasury Notes. According to the prospectus: “The Bonds will mature on April 15, 2040. Interest on the bonds is payable semiannually on April 15 and October 15, beginning October 15, 2010. Before giving effect to the offering of the Bonds and the securities to be issued concurrently,
the United States had approximately $12,500,000,000,000 of indebtedness subject to the statutory debt limitation.”
The United States Government (“the Government”) employs 2.8 million civilians and a further 1.4 million active duty military personnel. The Government holds title to 650 million acres of land, 3.3 billion square feet of building assets and numerous other assets. Public lands account for 5% and 11%, respectively, of America’s onshore oil and gas production, and 41% of its coal production. The Department of the Interior is responsible for the management of 1.76 billion acres of the Outer Continental Shelf that contain over 8,000 active mineral leases.
As a result of the economic downturn and the decade-long shortfall of Government receipts compared to Government pending, the Government has run, and will continue to run, substantial deficits. In fiscal 2009, the unified budget deficit (the “Deficit”) was $1.41 trillion, or 9.9% of GDP, compared to the fiscal 2008 Deficit of $459 billion, or 3.2% of GDP. The Congressional Budget Office (the “CBO”) projects the Deficit to decline slightly in fiscal 2010 to $1.35 trillion, or 9.2% of GDP. However, the Government is projected to run continued large deficits.
As a result of the financial crisis and insolvency of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp. (“Freddie Mac”), as well as the implicit Government guarantee on large financial institutions, the Government is exposed to substantial credit risk.
The tables summarizing our accounts are, of course, terrifying but nothing compared to our Risk Factors, which include:
- Improper payments by the Federal government continue to increase despite the Improper Payments Information Act of 2002.
- Material weakness from ineffective internal controls over fnancial reporting that resulted in a
- disclaimer of opinion by the Government Accountability Offce.
- The dollar may not continue to enjoy reserve currency status and may decline in the future.
- The Federal Reserve, as part of its response to the fnancial crisis, may…
