Perfect Storm Forecast

The big, the only question for President Obama and his administration is: can they get past November 2012 before the roof falls in? The whole point of the Federal Reserve's QE2 is to keep the benefits going for the president's supporters until he is safely reelected.

After that? Apres moi, le deluge.

But the big question, looming larger and larger, is whether the administration will get to the election before the deluge. Here's a report from the financial front from Jim Lacey that suggests that time is running out.

When the Fed’s $600 billion QE2 buying spree ends, there will not be enough buyers left to purchase the $1.4 trillion in debt the administration has built into this year’s budget, at least not at current interest rates.

The Fed is not only looking to stop buying new debt, it also wants to get rid of the nearly $1.3 trillion currently on its balance sheet. Absorbing $1.4 trillion in new debt, rolling over maturing debt, and simultaneously purchasing debt the Fed bought during its quantitative-easing forays is a lot to ask of the market.

So what this chap is saying is that interest rates are going to have to go up a lot if the federal government is going to get the market to buy its debt. And that will increase interest expense, and that will create a need to float more debt, and that...

What you get at the end of all that is a sovereign debt crisis, when the government starts reneging on all its promises.

Here's a bellwether. The Democratic Congressional Campaign Committee is already going after Rep. Paul Ryan's (R-IL) FY2012 budget, anchored by a website called stopbenefitcuts.com.

Well, of course they are. If we are going to do anything about spending, then we are going to have to do something about those trillions in benefits going out every year to Democratic voters. Want to know how much is at stake. As always, usgovernmentspending.com has the numbers.

There it is. Government pensions: $1.0 trillion. Government health care: $1.1 trillion. Government education $0.9 trillion. Government welfare: $0.6 trillion. National defense, by the way, is another $1.0 trillion.

You tell me. When the bond market starts to shy away from Treasuries, and the government has to cut spending in order to get "confidence" back into the financial markets, where are they gonna cut?

Let's start with $200 billion in "Pentagon waste." Oh good. That means that all the rest of the cuts have to come from Democratic supporters and their benefits.

You can see why the Democrats are already taking to the streets.

Stop. Benefit. Cuts. Dot com.

Yes, senator. Right away, senator.