We Are Buying Our Own Debt As We Spend Trillions & Lose Foreign Buyers

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 Zerohedge: Federal Reserve Balance Sheet, January Update

I wish I could buy 61% of my own debt like the Feds did last year. If I use one of my credit cards to pay off another while I keep spending, isn’t that mimicking the Feds actions? Unfortunately, if I do it, I will eventually have to pay WITH INTEREST!

The Feds are buying from Peter to pay Paul, literally, with our money. We are chumps because at some point we will have to pay it and it will hurt. This also gives the Feds never-before-seen power which is a subject for another story. Look at the chart above and be afraid.

Obama is still borrowing trillions of dollars and all we can do about it is buy our own debt, which in the end, will have to be paid by the taxpayer. The government doesn’t have any money.

The government is pretending there is a high demand for U.S. debt when in fact, they are buying most of the debt AND EVERYONE KNOWS IT, which is why Japan and China are avoiding buying U.S. Treasuries.

The Feds are coming through again with their machinations to keep the economy from its inevitable collapse unless we stop or slow the spending. They bought 61% of the government debt issued by the Treasury Department in 2011 – it’s a first. This is a desperate move because we are losing foreign buyers and U.S. corporate and bank buyers.

Take a look at this chart if you don’t believe me –

Foreign purchases of U.S. debt dropped to less than 2 percent  of GDP (Gross Domestic Product) from almost 6 percent just three years ago. And private sector investors — banks, money market and bond mutual funds, individuals and corporations — have cut their buying way back as well, to less than 1 percent of GDP, down from 6 percent.

And many are perpetuating the lie (or they misspoke). One of those is Alan Binder who is sitting on the Federal Reserve’s Open Market Committee table. Now a professor at Princeton. (The New American).

On January 19 Binder wrote in the Wall Street Journal that –

Strange as it may seem with trillion-dollar-plus deficits, the U.S. government doesn’t have a short-run borrowing problem at all. On the contrary, investors all over the world are clamoring to lend us money at negative real interest rates.

In purchasing power terms, they are paying the U.S. government to borrow their money!

Binder repeated the error in front of the Senate Banking Committee just one week later: “In fact, world financial markets are eager to lend the United States government vast amounts at negative real interest rates. That means that, in purchasing power terms, they are paying us to borrow their money!”…Read more: The New American

It’s dangerous and it hides our debt obligations while giving the false impression of never-ending buyers for our debt as we spend and spend and spend. Remember 1972 when all was well and the inflation suddenly jumped to 11% within two years and stayed high for more than 10 years.

Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.”

Our government is becoming more and more dependent on borrowing (now mostly from ourselves and future generations) to finance our economic existence. We have gone from borrowing .06% – 3.9% at most to an outrageous 8.6% of GDP with no end in sight. When the Feds buy the debt, subsidizing the government spending, it keeps interest rates artificially low and hides the actual size of the deficit.

The Senate has the Democratic votes to pass Obama’s budget. If it is so great, why don’t they vote for any of the President’s trillion-dollar-deficit budgets after three years? It wouldn’t help their election chances, would it? They demonize the Ryan budget which cuts and slows the growth of spending. The Democrats do not want to spending and save the economy. Paul Krugman wants us to spend more.

The fact is that Obama’s 2011 budget failed with a 0 to 414 vote in the House which means not one Democrat voted for it. The 2012 Obama budget vote in the Senate in May of last year failed 0 to 97

If we don’t curtail the spending and expose the false narratives set by the Feds, we are set up for a sharp and painful correction, but it is being directed towards after the November election.

…Decisive steps must be implemented to restore the economy and markets to a sustainable path. First, the Fed must stabilize and purposefully reduce the size of its balance sheet, weaning Treasury from subsidized spending and borrowing. Second, the government should be prepared to lure natural buyers of Treasury debt back into the market with realistic interest rates.

If this happens, the resulting higher deficit may at last force the government to make deficit and entitlement reduction a priority. First and foremost, however, we must abandon the conventional wisdom that market demand for U.S. Treasury debt is limitless.

Mr. Goodman is president of the Center for Financial Stability and previously served at the U.S. Treasury…Read more: WSJ online

Take a look at who holds our debt (us) –

 Zerohedge

 

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