**[Public Debt After Enactment of the Stimulus, Omnibus and
Supplemental]{.underline}**

**The Problem**

In addition to a \$410 billion Omnibus, Congress is poised to enact an
\$800 billion Stimulus and a \$100 billion Supplemental. Added to CBO's
projected deficit of \$1.2 trillion, Congress's legislation will force
the Bureau of Public Debt to attempt a borrowing of \$2.1 trillion this
year. This is over four times the amount of new debt ever sold by the
United States.

**How Does the Government Actually Borrow Money?**

The Federal government currently owes about \$10 trillion: \$6 trillion
to private lenders and \$4 trillion to government trust funds, mainly
Social Security. Most of the debt owed to private lenders is short-term
debt -- owed for less than a year. Last year, the U.S. government sold
over \$6 trillion in debt as it refinanced short-term debt and added to
this number due to the deficit.

When Congress approves the Stimulus and related spending bills, our
action will force the Bureau of Debt to attempt to sell \$2.1 trillion
of our debt. Back in 2000, the U.S. auctioned debt 145 times. With
borrowing exploding, our debt was sold 263 times last year and the
number will rise dramatically after enactment of the Stimulus. [Between
the short-term current debt to be refinanced and the new debt sold, the
Bureau of the Debt will attempt to borrow nearly \$150 billion a week
from world markets]{.underline}.

While the number of primary purchasers used to top 40, only 17 "primary
dealers" buy U.S. debt today. As recently as 2003, most purchasers of
U.S. debt were American. Now the buyers are mainly foreign with China
topping the list of purchasers.

**Who Will Buy Federal IOUs?**

We can already see warning signs of offering so much debt for sale.
After buying over one trillion of U.S. debt (including over \$300
billion of Fannie Mae and Freddie Mac), China's desire for buying more
American IOUs is waning. Fitch Ratings reported that China's purchases
of U.S. debt will decline from over \$400 billion last year to just
\$177 billion this year. China announced recently that it will decrease
its buying of foreign securities worldwide as it borrows for its own
\$586 billion stimulus program.

**Other Governments Are Competing for Investors Still Willing to Buy**

The debt the U.S. will sell will compete with other governments wanting
loans. The European Union, Japan, China, South Korea and 10 other
governments announced 2009 borrowing plans of their own totaling another
\$1.2 trillion. One question we might ask \-- who has the money to
purchase all of this U.S. and foreign government debt?

Treasury officials express confidence that there are plenty of entities
willing to lend the U.S. government money. In these uncertain times,
there is a "flight to safety" in U.S. treasuries. Last year, we borrowed
\$6.7 trillion against the \$17 trillion offered. With such demand, why
worry?

Unfortunately, this year conditions are changing. With the U.S. offering
four times the amount of new debt ever offered and Chinese willingness
to loan us money disappearing, there may come a time when the interest
we have to pay to sell our debt goes up. Most of our debt is held for
less than one year. Any increase in the interest we have to pay to sell
our debt will effect interest rates and constrain the federal budget.
Reuters recently reported that the "Fed faces uphill battle to hold U.S.
yields down."

The Wall Street Journal reported that the Fed may enter the market as a
direct purchaser of U.S. debt. If demand for U.S. debt was so strong,
why would the Fed join the current list of 17 purchasers of U.S. debt to
hold an auction? Are they worried that with so much debt to sell, they
may be needed to save an auction?

**What Happens if We Cannot Sell More Debt?**

The worst case scenario would be an auction of federal debt that failed
to attract enough buyers. Recently, the German government failed at an
auction of its government debts. Such an event in America would trigger
another panic. Since U.S. debt auctions are reported openly within 90
seconds, a failed U.S. auction would trigger a panic on Wall Street long
before Treasury officials could get the President on the phone.

**How Much Will All This Debt Cost?**

Beyond the short-term concerns about quickly borrowing \$2.1 trillion,
we should be concerned about the long-term. [There are only 111 million
American individuals and families who actually pay taxes]{.underline}.
Their pre-Stimulus debt per taxpayer totals \$54,000 each. After adding
\$2.1 trillion to the \$6 trillion currently owed, their debt rises in
just one year to \$75,000 each. **Each family's debt will total more
than a college education**.

Interest payments for the government are rising too. In 1980, interest
on our debt cost \$52 billion. Last year, the payments were eight times
more \-- \$412 billion. To maintain faith in our dollar, these interest
payments must be made before the first Social Security check or salary
of a soldier can be covered.

**Conclusion**

In these times, it is easy to see where Stimulus dollars will be spent.
But before we approve such legislation, we should answer two other
questions: 1) should we borrow this money and if so, 2) can we borrow so
much money [in just one year]{.underline}? Never in the history of our
nation have we borrowed so much from so few.

-Received from the office of Rep. Mark Kirk