Charting America’s Brief Trip In And Out Of Austerity… And Onward To Complete Disaster

Sunday, July 17, 2011
By Paul Martin

by Tyler Durden

One of the “positive” side-effects of the Treasury’s plundering of retirement accounts is that total US debt in June actually declined for the first time since January 2010, dropping by $1.6 billion from the May 31 closing print of $14.344 trillion. No doubt this was predicated by the US Treasury officially breaching the debt ceiling on May 16. Yet due to this, or for some other reason (and it is not a surge in net income tax receipts as these appear to have reached an inflection point earlier in the year and are now trendlining lower on a Y/Y basis), something else happened: the slope on the cumulative deficit line since the start of the depression in December 2007 (see below), is now the shallowest it has ever been. In other words, the US over the past few months, faced with the threat and now reality of a debt ceiling breach was actively cutting spending, while benefitting from a transitory spike in income tax revenues, although unfortunately now that the unemployment rate is back on the trendline to double digits, this will be the only true transitory thing about the US economy. Whether this actual, factual fiscal prudence was conscious is unclear, however the result is clear: faced with the threat of being unable to finance every single dollar in perpetuity, the US government’s involuntary self-imposed austerity actually… Worked! And yes, the direct side effect is that Q2 GDP is now likely to come at 1.6%: the worst quarterly increase since… Q2 of 2010 (recall that 2010 Q2 GDP was revised from 2.4% to 1.6$ on August 27 last year… hours before Bernanke announced QE2 ). And there once again is the glaring correlation between the slowing of the economy and the decline in debt issuance, and the actual deficit “improvement.” Now take this slower deficit growth, and assume it actually is reversed, i.e., America has a budget surplus. While great for the country in the Long-Run, it would mean that GDP, which is now purely reliant on how much debt Geithner can issue, it would mean a collapse in the GDP, in the S&P, and in Wall Street executives’ bank accounts. At least in the absence of QE3, 4 and so forth…

The Rest…HERE

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