Tim Geithner Spills The Beans, U.S. Debt Crisis Looms

As the European sovereign debt crisis quickly spreads to Spain (again), with the Spanish 10-year bond yield once again soaring past 6 percent (on its way to the magic red-alert yield of 7.5 percent), the half-life between sovereign debt bailouts appears to be diminishing.  Predictions of a four-year time window to prepare for the mother of all currency crises could turn out to be overly optimistic, with the latest rumblings that suggest the math won’t work a lot sooner than originally estimated by some economist and analysts focused on the problem.

So says U.S. Treasury Secretary Timothy Geithner, if lightening has indeed struck again. 

From the weekend program, Meet the Press:

DAVID GREGORY: If we don’t deal with these debt problems we are going to be Greece in two years”

GEITHNER: “No risk of that.”

A year earlier, when Geithner was asked about scuttlebutt brewing of an impending downgrade of U.S. debt, he assured the world that there is “no risk of that” either.  Weeks later, rating agency Standard & Poor’s rocked the financial markets with an announcement of a debt downgrade of the world’s remaining superpower.

Geithner, once afforded the traditional benefit of a reasonable measure of public trust, lost all credibility on the day of the S&P announcement, as a case made that the highest-ranking Treasury ‘official’ wasn’t privy to an impending historic milestone of such gravity was never attempted by anyone in the Obama administration.

Could Geithner have slipped up again?  Does he know the dollar’s days number less than two years’ worth?

Though a stretch, as it may appear, Geithner’s otherwise carefully measured responses during his tenure as Treasury Secretary have at times been marked by fits of overplayed knee-jerk protests—’me thinks’.  As in the case of S&P, it’s become clear that Geithner may exhibit a ‘tell’ under certain moments of duress.

If U.S. debt and current account deficits weren’t so bizarrely high, coupled with a likelihood of GDP contraction in the U.S. next year coming more into focus; and a growing repulsion by overseas creditors to accumulate more debt, investors could reasonably accept Geithner’s word on the subject of solvency.

But one economist, in particular, is quite sure that 2014 will be the end of the line of 40-years-plus of deficit spending without tears.

“We’re at a scary point in time” in U.S. fiscal history, economist John Williams of ShadowStats.com told Financial Sense Newshour in March.  “Our [U.S.] circumstances are a lot worse than the European situation, in aggregate.  The European situation will work its way out one way or another, and the markets will focus back on the U.S.  I cannot see anyone wanting to buy U.S. Treasuries.”

Williams went on to say that as soon as there is any relief in the crisis in Europe, the bond vigilantes will begin to take notice of the overwhelming fiscal problems confronting the U.S. and its Greece-like characteristics.  For now, he said, the dollar is less ugly than the euro, but that won’t last very much longer.

“The U.S. is the elephant in the bathtub here . . . the European crisis is more like the little yellow rubber duck floating in the tub,” Williams added.  “There will come a time when the markets will begin focusing back on the dollar.”

And that time could be a lot sooner than many in Washington care to admit, according to Williams.  “I expect it to all come to a head in 2014.”  There will be hyperinflation, he said.  It’s only a matter of time and not much can be done about it other than drastic cuts to entitlements and accept a deflationary collapse.  And Williams isn’t giving that scenario much chance.