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Mr. President, Don’t Let the Truth Spoil a Good Story
Commentary on the News
Monday, July 18, 2011
Ed DeShields

Unless you’ve been living under a rock, you’ve taken one side or the other in the debt limit debate.  It’s not hard to understand the central issue.

We’re out of money and we have to keep borrowing or bad things will happen.  Trouble is, bad things will happen if we keep borrowing just to keep spending.

Unless you are an economics wonk, you probably haven’t yet realized how bad the problem has become – and just how far the administration is willing to go to keep the scheme going.  Almost no one has noticed the shell game being played to keep us from defaulting on our debt.  It’s the administration’s dirty little secret.

It has a name.  If you Google it you won’t find it.  If you heard it under its technical term you wouldn’t know what they were talking about.   Try an acronym checker.  It won’t show up.   But here it is; DISP, short for "debt issuance suspension period".

DISP might more accurately be described as DISPeration [sic desperation] of the administration to keep the government from all out default.  When you’re desperate, you’ll do anything.

That’s exactly what it did.  It set up the biggest looting of a Treasury trust fund in American history.

Back in May Treasury Secretary Geithner casually mentioned to the press that he could delay the day of reckoning until August.  As it turned out, Geithner would simply declare a "debt issuance suspension period" (DISP) that would guarantee that no new debt would be issued from May 16 to August 2.  That would satisfy the financial markets and show them the U.S. didn’t need to continue printing money to make ends meet.

At the time there was a lot of talk about how the end of the QEII stimulus plan would give the economy’s heartbeat the chance to start beating on its own.  For a while the markets reacted positively.  Stocks went up.  Gold, silver and oil went down.

It’s a good story, but it’s not the truth.

Going into May 2011, the administration knew the government had already blown through its annual budget some four months too soon.  Yet, it still faced billions of dollars in bills coming due before the end of the budget year in September.  They needed a plan to keep the doors open at the great halls of government.

Geithner’s slipped the story to Congress where he laid out that the Treasury would  “redeem (e.g. sell) a portion of the investments held by the CSRDF, as authorized (permitted) by law" and he would do the same regarding the "Government Securities Investment Fund [G Fund for short].  I suspect Congress must have said, “uh huh, whatever”.

The CSRDF is the Civil Service Retirement and Disability Fund.  The G Fund is part of the Thrift Savings Plan.  Both are pension plans for civil service employees.

As it turns out, both funds have been looted; all to keep the scheme going.

The CSRDF used to hold about $800 billion in assets.  After DISP, the Monthly Statement of the Public Debt showed the Fund had plunged to $680B as of the end of June.

The balance at the Thrift Savings Fund isn’t pretty either.  Its $130B in assets at the end of April now has just under $25B remaining.

Some of these funds are employee contributions made by civil employees themselves.  The money isn’t the property of the administration, or Congress mind you.  If an employer redirected employee contributions they would face serious legal consequences; maybe the kind that would include a stay at a Federal prison.  But what if the looter is the government itself?

Mr. Obama has painted himself into a corner.  He must get tax increases and raise the debt ceiling by August to enable him to kick the can down the road to the next election.  Perhaps his tax increase strategy will help him put the money back before anyone notices it’s missing (but that probably won’t happen either).

It’s a colossal gamble.  It’s a desperate act of a desperate government.  Obama can’t compromise because compromising is like a pulling a string on your favorite sweater.  It unravels the whole economic order.

There’s a very good chance the other side of the aisle knows the President’s dirty little secret – although I can’t credit our politicians for understanding much of what’s going on with our country’s finances.  They have a poor history in reading the legislation they eventually pass.

I doubt there isn’t a single Federal retiree that is privy to their piggy bank having been looted.  If they knew it would mark the beginning-of-the-end of the Obama presidency.

In the meantime, the debate rages on with both sides dug-in along ideological positions.  They better hurry.  The pension funds are running dry.

About Ed DeShields

Last article: Men from Princeton on Money



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