Debt Ceiling the Deal

So the buzz is that the GOP is going to cave on the "fiscal cliff" Bush top marginal rate cut extension and extract revenge on a Debt Ceiling hostage crisis. Incidentally, the last Debt Ceiling hostage crisis was the event that precipitated the "fiscal cliff" scenario with the automatic sequestered cuts &c. blah blah blah. Anyways, just wanted to muse a bit on the whole "Debt Ceiling" thing.

Deficit spending is unsustainable - government finances are bankrupt - you can't just borrow your way out of things. You know what? None of that is actually true. It was in 2010 that Treasury bills started selling at negative yield. Meaning that at auction, people are willing to accept treasury bills at a rate lower than inflation. And have been continuously doing so for two years now. In other words, the market thinks the US government needs to go further in debt, and is willing to "pay" for it. That last $15 billion auction, Treasury is getting paid by the market almost a hundred million dollars to borrow money.

This was my usual response to people who made the argument about not being able to borrow. Market conditions right now are such that people are willing to accept negative yields for government debt. It's the market that is telling government to borrow money.

Turns out the situation is even more extreme that I had thought. Those TIPS treasury bills are ten-year bonds, so investors are getting ten years of "stability" out of their investment. That when the bonds mature, they can be certain (with the full faith and credit of the US government) that they'll get their money back. Short-term bonds sell at lower rates. How low? Around 0.1% BUT that number is fake - artificially inflated because Treasury hasn't yet implemented a system for bidders to put in negative absolute rates, something they saw a need for at the beginning of this year.

Meaning, we're no longer talking about negative yields relative to inflation - we are talking about moving to a situation where the US is straight up getting paid to borrow. Lenders are telling the US government that they'd like to give them a hundred bucks today if they can get paid back ninety five bucks four weeks from now. So when the responsible fiscal conservatives tell you that raising the debt ceiling is a bad thing - it's roughyly the equivalent of not picking a twenty up off the floor because you've decided that you've already used up your allotment of bending over.