February 19, 2004

$384 Billion to Go...Before Congress Changes the Rules

Wrote the story below up in my notes for the Daily Reckoning the morning. The government is near its self-imposed (an routinely self-violated) spending limit. Bond prices are virtually unchanged, but edging slightly up--as measured by TLT, IEF, and LQD. The dollar was its strongest in six days early today. But its sliding a little as I write. Who knows what currency traders are thinking? Or what positions they have at dollar/euro 1.30? As I said this morning, the ECB has signaled loud and clear, through Issing's essay in the Journal, that it believes the Fed has facilitated a financial asset bubble with low rates...and that it won't make the same mistake, even, and here's the implication, if it means the euro crashing through 1.30. Traders don't believe that yet, or don't want to think about a world with the dollar in free fall. If you haven't thought about it, it's not too late. Since bond prices don't seem to be busting any lower on dollar weakness, the best way to be short the dollar is to be long gold, and let the the complex relationship between the dollar and the bond market work itself out. Speculators have more choices, on which I'll have more to say later this week or early next. I'm sure our children will thank us for this. "WASHINGTON (Reuters) - The U.S. government's national debt -- the accumulation of past budget shortfalls -- totaled more than $7 trillion for the first time as of Tuesday, according to a Treasury Department report. "In its daily financial statement released on Wednesday, the Treasury said the U.S. debt subject to a congressionally set limit totaled $7.015 trillion, up from $6.983 trillion on Friday. The government was closed on Monday for the Presidents Day holiday. "While passing the $7 trillion mark itself has little practical significance, not unlike a car's odometer rolling over, it may signal some tough political times for President Bush's administration on fiscal policy. "The government debt ceiling stands only a few hundred billion dollars ahead at $7.384 trillion, and Treasury would need Congress's blessing to borrow beyond that. Treasury officials say they expect the limit to be hit sometime between June and October. "


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