WASHINGTON (AP) — The Senate voted Thursday to allow the national debt to swell to nearly $9 trillion, preventing a first-ever default on U.S. Treasury notes. The bill passed by a 52-48 vote. The increase to $9 trillion represents about $30,000 for every man, woman and child in the United States. The bill now goes to President Bush for his signature...The debt limit will increase by $781 billion. It's the fourth such move — increasing the debt limit by a total of $3 trillion — since Bush took office five years ago. The vote came a day after Treasury Secretary John Snow warned lawmakers that action was "critical to provide certainty to financial markets that the integrity of the obligations of the United States will not be compromised."
Several things always seem to follow increases in the U.S. deficit. First of all, everyone speculates that the United States will no longer be the global superpower for very much longer, and that this is a sure sign that some "emerging economy" is going to take over instead. Money then floods into these emerging market economies in the desperate attempt to find the next goldrush, as the investors mistakenly see their capital as "investment" rather than "leverage" propping up largely unsustainable growth. All the capital from this growth is stored, naturally, in U.S. T-Bills.
Emerging economies then open derivatives markets to all possible national financial instruments: stocks, commodities, even their own currency, in order to provide further liquidity for all this capital "investment". At the realisation that all this "growth" is not going to materialise, investors quickly divest all their savings, which usually do not amount to much, as a few savvy macro hedge fund managers cash in enormous futures contracts against the local currencies (enabled by the recent opening of the derivatives markets), ending up as the only ones to have made anything near the promised billions in profits.
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