Wednesday, April 22, 2009

US Dollar Collapse: Treasury Bubble bursts. GDX, TNR.v, RMK.v,, SBB.v, MGN,, ASM.v, FVI.v, OK.v, BTT.v, KTN.v, VTR.v, GBN.v, HUI, XAU

Supply and Demand is the Law of Nature: you can not print Gold or Silver or Lithium, but US Dollars and IOUs are flying from the FED press every second. More supply of Treasuries and less demand for them equals China stockpiling Copper in order to get out of US Dollar crash trap. Increase money supply means Inflation, High long term rates with low FED rates means Negative Real rate and Gold flying to the new highs. High yield demanded by buyers of Newly issued debt means Lower prices of treasuries issued, Treasury Bubble bursts in front of us.

Soaring U.S. Budget Deficit Will Mean Billions in Bond Sales

"April 22 (Bloomberg) -- Millions of lost jobs mean billions in lost tax revenue for the U.S. government, and billions in additional Treasury debt to fund a federal budget deficit that may soar to more than four times last year’s record $454.7 billion.
Employers cut 3.7 million positions from their payrolls in the six months since the fiscal year began Oct. 1, and the unemployment rate reached a 25-year high of 8.5 percent in March. That suggests receipts for April -- the biggest month for tax collection -- are likely to come in well below April 2008, analysts said.
With spending on unemployment insurance and other safety- net programs rising, the deficit is already at a record $956.8 billion six months into the fiscal year. To help close that gap, the Treasury Department has more than quadrupled borrowing, pushing the government deeper into debt.
“Tax receipts are just collapsing,” said Chris Ahrens, head of interest-rate strategy at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid at Treasury auctions. The need to sell more debt “is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.”
The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to UBS. From October through December, the Treasury sold a record $569 billion, up from $82 billion in the same period a year earlier, and auctioned another $493 billion in the last quarter, up from $156 billion. That helps to make up for the drop in tax receipts, pay for the rise in spending and refinance maturing debt. Along with the principal, the sales add additional interest costs to the deficit for years to come.
Unemployment Benefits
At the same time, government spending has climbed 33 percent in the fiscal year through March, as relief programs such as unemployment benefits expand. Labor Department expenditures have more than doubled to $52.7 billion and payments by the Department of Health and Human Services have risen by $40.6 billion, or 12 percent. Spending by the Agriculture Department, which runs the food-stamp program, is 18 percent higher, or $9.9 billion more than in the same period a year ago.
These increases will contribute to a record federal budget deficit this fiscal year. On March 20, the Congressional Budget Office forecast the shortfall will reach $1.85 trillion, dwarfing the previous peak. UBS estimates a budget deficit of $1.65 trillion, Ahrens said.
Plummeting Receipts
Rising unemployment and lower consumer spending helped drag income-tax receipts from individuals and small businesses down 15 percent in fiscal 2009 through March, compared with a year earlier. Data due in May will likely show that the recession curbed estimated-tax payments in the first quarter, while the drop in financial markets caused capital gains to shrink.
With the tax cuts from President Barack Obama’s stimulus package also taking effect in April, “that combination is going to give you weak tax revenues,” said Douglas Lee, chief economist at Economics From Washington, an independent consulting firm in Potomac, Maryland.
From the start of the fiscal year through March, personal income-tax payments fell to $429.7 billion from $503.5 billion in the year-earlier period, according to Treasury budget statistics. That’s the first such drop since 2003, according to department records.
“There’s been a huge hit, not just to income but to wealth,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “The economy did not turn in the first quarter of the year.” The numbers “are worse than most of us would have expected coming into the tax season.”
Lower Earnings, Higher Refunds
The federal government is also losing revenue from corporate tax receipts, which have fallen 57 percent from the first six months of fiscal 2008. Not only are companies earning less -- and paying less in taxes -- they are getting more in refunds.
Obama’s economic-stimulus package included a provision allowing small businesses with losses in 2008 to carry back those losses for five years rather than two, so companies can claim refunds against taxes paid in the past. Business refunds in January through March of this year were $40.4 billion, almost double the $22.3 billion of a year ago.
Personal income-tax refunds are also higher than last year, up 11 percent to $207.8 billion. That may be because people who pay estimated quarterly taxes based their estimates on 2007 earnings, and overpaid as the economy collapsed in 2008, Lee said.
Close the Gap
States and cities are also being hit hard by unemployment’s effect on tax revenue. The 23,300 Wall Street jobs that disappeared in the year through February helped blow a $16 billion hole in New York state’s budget. State officials are trying to close the gap by raising taxes, which will likely restrain spending and slow recovery.
The attack on bonuses led by members of Congress also hurts. As payments are scaled back or eliminated, tax revenue falls. It’s not just a problem for New York: Individual tax receipts were 4.5 percent less than forecast in Minnesota during February and March.
“While lower-than-expected withholding-tax receipts are always a matter of concern, this shortfall appears to be due to lower-than-projected bonus payments,” the Minnesota Management and Budget office said in its April Economic Update.
At the federal level, concern over the budget deficit extends beyond this year’s “disaster,” Harris said. Social Security and Medicare costs are also rising as baby boomers age, and the Obama administration has a number of new programs beyond stimulus -- including revamping health care -- that it wants to spend money on.
“It’s going to be a structural issue,” Harris said. “You have a Congress that’s lost its fear of deficits, so it’s still going to be hard to turn the deficit around once the economy and tax receipts have recovered.”
To contact the reporter on this story: Michael McKee in New York at Last Updated: April 22, 2009 00:01 EDT"
Post a Comment