Why is This Topic Important to Wealth Managers? This blogticle discusses the debt limit debate. We present discussion directly from the Administration including the Department of the Treasury. Wealth managers who are following the debt debate discussion will likely be interested in our presentation of insider comments.

As almost the entire world knows at this point, the U.S. reached the debt limit on May 16, 2011. To plug the gap, the Treasury Department has employed three measures to temporarily extend our ability to meet the nation’s obligations.  Those measures, in order taken, are (1) suspending issuance of State and Local Government Series (SLGS) Treasury securities; (2) declaring a “debt issuance suspension period” of the Civil Service Retirement and Disability Fund (CSRDF); and (3) suspending reinvestment of the Government Securities Investment Fund (G Fund).

It is said that these four extraordinary measures allow the Treasury to extend borrowing authority until August 2, 2011. Here’s what Treasury has said about the debt limit over the past few weeks:

7/12 Mary Miller, Assistant Secretary for Financial Markets at the U.S. Department of the Treasury, issued the following statement reaffirming the projected date on which the United States will exhaust borrowing authority under the statutory debt limit.

“The Treasury Department continues to project that the United States will exhaust its borrowing authority under the debt limit on August 2, 2011.  Secretary Geithner urges Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner.”

7/13 Treasury Secretary Tim Geithner made a brief statement to the press:

There is unanimity in that room that we are a country that meets its obligation, we are a country that pays our bills and that we’ll act and do what’s necessary to make sure that we can maintain that commitment. As the Majority Leader said, we have looked at all available options and we have no way to give Congress more time to solve this problem and we are running out of time.

And the eyes of the country are on us, and the eyes of the world are on us and we need to make sure we stand together and send a definitive signal that we are going to take the steps necessary to avoid default and also take advantage of this opportunity to make some progress in dealing with our long-term fiscal problems. We don’t have much time; it’s time we move.

7/14 The U.S. Department of the Treasury released the following statement from Under Secretary for Domestic Finance Jeffrey Goldstein on the Standard and Poor’s (S&P) downgrade:

“[This} action by S&P restates what the Obama Administration has said for some time: that Congress must act expeditiously to avoid defaulting on the country's obligations and to enact a credible deficit reduction plan that commands bipartisan support.”​

7/15 U.S. Department of the Treasury releases the following statement from Jeffrey Goldstein, Under Secretary for Domestic Finance, regarding the use of the last of the previously mentioned measures available to keep our nation under the statutory debt limit, suspension of reinvestment of the Exchange Stabilization Fund.

“Today, as previously announced, the Treasury Department will suspend reinvestment of the Exchange Stabilization Fund, the last of the measures available to keep the nation under the statutory debt limit.  In order to prevent a default on the nation’s obligations, Congress must enact a timely increase of the debt ceiling.”

Finally, to quote President Obama from his address earlier this week:

“[American workers] are fed up with a town where compromise has become a dirty word.  They work all day long, many of them scraping by, just to put food on the table.  And when these Americans come home at night, bone-tired, and turn on the news, all they see is the same partisan three-ring circus here in Washington.  They see leaders who can’t seem to come together and do what it takes to make life just a little bit better for ordinary Americans.  They’re offended by that.  And they should be.”

Tomorrow’s blogticle would ideally present the terms of the debt agreement, but if not, we’ll discuss life insurance.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Why is this Topic Important to Wealth Managers? Today we discuss foreign investment in the U.S. both private and public. The data shows a growth in the U.S. investment sector. The evaluation provides wealth managers information regarding global economic investment in the U.S.

This Treasury and Federal Reserve recently presented data and analysis regarding the latest annual survey of foreign portfolio holdings of U.S. securities. The survey measured positions as of June 30, 2010.

The annual survey measured foreign holdings of U.S. securities as of June 2010 at $10,691 billion. Of the over $10 trillion of foreign holdings $9,736 billion were holdings of U.S. long-term securities (original term-to-maturity greater than one year) and $956 billion were holdings of U.S. short-term securities.

In the previous survey as of June 30, 2009, total foreign holdings amounted to $9,641 billion.  The increase over the 12-month period from June 2009 to June 2010 – $1,050 billion – more than reversed the decline in total foreign holdings of U.S. securities in the 2009 survey.  Foreign holdings of equity rose $562 billion to $2,814 billion.  The increase in part reflected the rebound in stock prices between the 2009 and 2010 survey dates, but even so, foreign holdings of U.S. equity remained below the level recorded in 2008 (value of holdings is determined at fair market).  Foreign holdings of U.S. long-term debt securities rose $681 billion over the same period.  This increase was more than accounted for by a record increase in holdings of long-term Treasury securities, which rose $739 billion to reach a level just above $3.3 trillion.

In contrast, foreign holdings of long-term agency securities decreased further from the peak recorded in June 2008.  Foreign holdings of long-term corporate securities edged up slightly over the 12-month period.  Foreign holdings of U.S. short-term securities decreased $193 billion to $956 billion.  Foreign holdings of U.S. Treasury bills and certificates, short-term U.S. agency securities and short-term corporate debt securities all declined.

At $9,736 billion, foreign holdings of U.S. long-term securities continue to be considerably larger than U.S. holdings of foreign securities, estimated at $5,175 billion as of end-June 2010.  Moreover, foreign holdings of U.S. long-term securities increased $1,244 billion during the 12-month interval between the 2009 and 2010 surveys, more than the $560 billion that U.S. holdings.

Foreign securities are estimated to have increased over the same period.  As a result, the ratio of U.S. holdings to foreign holdings decreased to 0.53 and the net position in long-term securities holdings widened further to -$4.6 trillion.  In June 2010, foreign holdings of U.S. long-term securities exceeded the previous peak recorded in June 2008, but U.S. holdings of foreign securities were estimated to be still below the peak recorded in June 2007.

The data show that at $1,611 billion, total holdings attributed to mainland China exceeded those attributed to any other country, surpassing holdings by Japan ($1,393 billion) for a second year.  Holdings attributed to residents of the United Kingdom were third at $798 billion.  The United Kingdom had been one of the top two investing countries in U.S. securities since country-level data became available (1978), but the United Kingdom fell into the third position behind the rapidly growing stock of holdings of China in the 2006 survey.  The United Kingdom remained the largest holder of U.S. equity in 2010, while China remained the largest holder of debt securities.

Long-term U.S. Treasury securities held by China amounted to $1,108 billion, up from $757 billion a year ago.  In addition, $4 billion of the $5 billion in short-term securities held by China were U.S. Treasury bills and certificates, bringing China’s total holdings of U.S. Treasury securities to $1,112 billion.  Notably, China has reduced its holdings of short-term debt since June 2009 by $155 billion but has increased its holdings of long-term Treasuries.  Japan was the second largest holder of U.S. Treasury securities, with total holdings of $799 billion, of which $737 billion were long-term Treasury securities and $62 billion were short-term securities.

Since the 2004 survey, China’s holdings of U.S. securities have more than quadrupled.

Tomorrow’s blogticle will continue to discuss tax and market issues relating to wealth management.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

The August 2 drop-dead date for the debt-ceiling is rapidly approaching, but Congress isn’t phased enough to set aside partisan bickering and solve the Fed’s funding woes.

In a stand against Democratic reticence over deep spending cuts, the Republican-dominated U.S. House of Representatives voted on May 31 to reject a bill that would have raised the debt ceiling. Republicans look to be using the debt ceiling fight to press the President and Congressional Democrats on spending issues.

The administration initially said that the debt-ceiling would be reached on May 16. But when that date passed, Treasury Secretary Timothy Geithner announced that the date could be extended through August 2 using accounting gimmicks and by letting bills go unpaid—for instance, ceasing investments in two government pension plans. The White House has also proposed selling 14,000 pieces of unused federal property to help cut the deficit.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of U.S. debt in Advisor’s Journal, see Debt Ceiling Approaching: Prepare for Impact (CC 11-100) & Storm Clouds over U.S. Debt (CC 11-85).

Why is this Topic Important to Wealth Managers? Today we present a discussion on the national debt limit. This special report discusses the issue surrounding the national budget troubles. Because the topic is being discussed throughout the country and around the world, wealth managers may be in a better position to advise clients knowing the details of the federal financial position.

Generally, the debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.

Failing to increase the debt limit would likely have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would likely precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession.

Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.  In the coming weeks, Congress must act to increase the debt limit. Congressional leaders in both parties have recognized that this is necessary

However, last week Mary Miller, Assistant Secretary for Financial Markets at the U.S. Department of the Treasury, issued the following statement reaffirming the projected date on which the United States will exhaust borrowing authority under the statutory debt limit.  Treasury has committed to providing Congress with updates each month of when extraordinary measures taken to keep the nation from defaulting will be exhausted.

“On the basis of careful analysis of actual and projected revenues and expenditures, the Treasury Department continues to project that the United States will exhaust its borrowing authority under the debt limit on August 2, 2011.  Secretary Geithner continues to urge Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner.”

If Congress fails to increase the debt limit, the government would have to stop, limit, or delay payments on a broad range of legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and many other commitments.

Defaulting on those legal obligations would also likely cause severe hardship for American families. Additionally, it would call into question the full faith and credit of the United States government – a pillar of the global financial system. The ensuing financial crisis from a default , as mentioned above, would have catastrophic economic consequences, potentially including the loss of millions of American jobs. And it would likely lead to higher borrowing costs, reduced retirement savings, and lower home values for families across the nation.

Tomorrow we revert back to our series and discussion on wealth management in today’s economic environment.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

Congress on both sides of the aisle is playing a game of political chicken with the debt ceiling; but what would impact mean for the markets and the economy in general?

Although the U.S. hit its $14.3 trillion debt ceiling on Monday, May 16, economic Armageddon hasn’t yet rained down on the U.S. economy. Thanks to some slick Treasury Department maneuvering, the date when the U.S. really reaches the limit has been pushed to around August 2.

But instead of breathing a sigh of relief and resolving to engage in a bipartisan effort to resolve the debt ceiling issue in advance of the August drop-dead date, both sides are likely to wait until the last moment to avoid impact—threatening our fragile economic recovery in the process.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of U.S. debt in Advisor’s Journal, see Storm Clouds over U.S. Debt (CC 11-85).

Why is this Topic Important to Wealth Managers? Presents discussion on the national debt and national future financial outlook.  A client wants to know what YOU think about Treasury Notes versus other types of government debt, even foreign government debt.  An understanding of the annual federal national deficit, and its impact on the federal national debt, will provide you a helpful starting point to educate your client, without providing investment advice.

Today’s release of the new federal budget has us at Advanced Markets excited.  We thought an introduction to the current economic condition would therefore be appropriate.  As of September 30, 2010, the federal debt managed by Bureau of the Public Debt totaled about $13,551 billion primarily for borrowings to fund the federal government’s operations.  A Government Accountability Office (GAO) Study recently showed the Federal Debt balances consisted of approximately (1) $9,023 billion as of September 30, 2010, of debt held by the public and (2) $4,528 billion as of September 30, 2010 of intragovernmental debt holdings. [1]

Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits.  To finance a cash deficit, the federal government borrows from the public.  When a cash surplus occurs, the annual excess funds can then be used to reduce debt held by the public.  In other words, annual cash deficits or surpluses generally approximate the annual net change in the amount of federal government borrowing from the public.

Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds, that typically have an obligation to invest their excess annual receipts (including interest earnings) over disbursements in federal securities.

The federal debt has been audited since fiscal year 1997. Over this period, total federal debt has increased by 151 percent.  During the last 4 fiscal years, managing the federal debt has been a challenge, as evidenced by the growth of total federal debt by $5,058 billion, or 60 percent, from $8,493 billion as of September 30, 2006, to $13,551 billion as of September 30, 2010.

The increase to the federal debt became particularly acute with the onset of the recession in December 2007. Reduced federal revenues and federal government actions in response to both the financial market crisis and the economic downturn added significantly to the federal government’s borrowing needs.  And, due to the persistent effects of the recession, experts believe federal financing needs remain high.  As a result, the increases to total federal debt over the past three fiscal years represent the largest dollar increases over a three year period in history.  The largest annual dollar increase occurred in fiscal year 2009 when total federal debt increased by $1,887 billion.

During fiscal year 2010, total federal debt increased by $1,653 billion.  Of the fiscal year 2010 increase, about $1,471 billion was from the increase in debt held by the public and about $182 billion was from the increase in intragovernmental debt holdings.

During fiscal years 2008, 2009, and 2010, legislation was enacted to raise the statutory debt limit on five different occasions.  During this period, the statutory debt limit went from $9,815 billion to its current level of $14,294 billion, an increase of about 46 percent.

Recovery from the economic downturn is expected to be slow during the next few years and as a result, deficits are expected to remain high.  The Congressional Budget Office (CBO) estimates the annual federal deficit will be just over $1 trillion for fiscal year 2011, down from $1.3 trillion for fiscal year 2010.  Correspondingly, debt held by the public is expected to grow from an estimated 62.5 percent of gross domestic product (GDP) at the end of fiscal year 2010 to over 66 percent of GDP at the end of fiscal year 2011. The real challenge is not this year’s deficit or even next year’s; it is how best to address the nation’s unsustainable long-term fiscal path over the coming decades.

While considerable attention has been understandably given to the near- term fiscal position, the federal government faces even larger fiscal challenges that will persist long after the return to economic growth.  The budget and economic implications of the baby boom generation’s retirement have already become a factor in near-term budget projections and will only intensify as the baby boomers age.  Since fiscal year 2008, the Medicare Hospital Insurance program has paid more in benefits than it receives in cash from payroll taxes.

In addition, for the first time in over 25 years, the Social Security program, which has historically run large cash surpluses that helped reduce the need to borrow to finance other federal government activities, paid more in benefits than it received in tax income in fiscal year 2010 thereby contributing to borrowing needs.

GAO and CBO’s long-range fiscal policy simulations continue to show that, absent significant changes in policy, the federal government’s fiscal condition over the coming decades is on an unsustainable path.  The sooner action is taken to address this long-term fiscal challenge, the less disruptive and destabilizing the changes will be.  As a result, the nation’s leaders face the challenge of dealing with current economic and financial issues in the context of the need to address the long-term fiscal challenges.

Tomorrow’s Advanced Markets Intelligence blogticle will continue with discussion on the national budget in order to provide you intelligence talking points when asked about the national debt beyond the generic that you may glean from news media.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts

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[1] The full study may be obtained by linking to: http://www.gao.gov/new.items/d1152.pdf.  Last Accessed 2/13/2011.