The U.S. Treasury Secretary, Jacob J. Lew, wrote a letter to Congress this week stating the U.S. government will hit the debt ceiling by October. He wrote, “…Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent.” (Source: U.S. Department of the Treasury, August 26, 2013.)
Lew added, “Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority. Failure to meet that responsibility would cause irreparable harm to the American economy.” (Source: Ibid.)
Will Congress raise the debt ceiling again? It certainly will!
Since 1960, Congress has raised the debt ceiling 78 times—49 times under Republican presidents and 29 times under Democratic presidents. (Source: U.S. Department of the Treasury web site, last accessed August 27, 2013.)
The debt ceiling, which is set by Congress, puts a restriction on how much the national debt can be increased.
On August 23, 2012, the U.S. national debt stood at $15.97 trillion. Fast-forward one year to August 23, 2013, and our national debt hit $16.73 trillion. (Source: Treasury Direct web site, last accessed August 27, 2013.) This is an increase in the national debt of 4.75% in just one year. Of course, in all 78 times Congress raised the debt ceiling, the new debt ceiling limit was later hit and needed to be raised again.
Our government continues to post an annual budget deficit. For the four fiscal years from 2009 to 2012, the federal government posted a deficit of more than $1.0 trillion annually. This year, it may be less—but not by much.
The letter to Congress by the U.S. Treasury Secretary is a simple request to increase the credit limit on America’s credit card—just as a family that spends more than it earns might do.
One might think this cannot go on forever—the debt ceiling being raised and the government subsequently hitting that new limit. But when we look at the fact that our debt-to-gross domestic product (GDP) ratio is only 105% and Japan’s debt-to-GDP is 205%, our national debt would have to double to $32.0 trillion for us to match Japan’s debt-to-GDP. But, of course, at that level of debt, instead of the U.S. dollar being the reserve currency of the world, it would likely become the “laughing stock” currency of the world.
So far, 487 companies in the S&P 500 have reported their second-quarter earnings. Turns out 72% of them were able to beat mean estimates. The blended corporate earnings growth rate for S&P 500 companies in the second quarter was 2.1%. (Source: “Earnings Insight,” FactSet, August 23, 2013.)
On the surface, the corporate earnings growth rate of these companies certainly looks good. But the devil resides in the details!(...)Click here to continue reading the original ETFDailyNews.com article: U.S. Dollar: “Reserve” To “Laughing Stock” Currency In Less Than One CenturyYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)