My weekend column is about “the debt ceiling” and how, even as the Treasury issues more and more debt, there are fewer and fewer people willing to buy it. I forgot to mention the really startling number. Pimco (which has now dumped US Treasuries) estimated last month that, under QE2, 70 per cent of the US Government’s debt is being bought by the Federal Reserve.
In other words, under the 2011 budget, every hour of every day, the federal government spends $188 million it doesn’t have, $130 million of which is “borrowed” from itself.
QE2 has been by all accounts a flop and is due to finish at the end of June. What happens then? Who makes up the difference? Will interest rates rise to make US debt more attractive? Or has American government now run up against the real “debt ceiling” – the willingness of the world to fund it?
Bernanke is a liar and a fraud. QE2 is nothing more than Bernanke printing money without admitting he's printing money.
Reply to this commentLinkReport AbuseWhich brings up the most pertinent question: Why aren't these debt spending whares being fired?
Reply to this commentLinkReport AbuseC'mon, Mark, that's easy. The Fed will simply come up with another check kiting scheme named something else.
My prediction? The USA will take out the first ever 100 year ARM from the Fed, with guaranteed low interest payments for the first decade, and a 100 trillion dollar balloon payment in 3011. Conveniently, the ARM will also come with a USA equity line of credit, which will allow the "homeowners" of record to borrow up to 300% of the value of the mortgaged property consisting of the entire land area and property holdings of the USA and it's homeowner citizens.
It will be the first government "no doc" mortgage in history, signed by Barrack Hussein Obama, who will name Tim Geithner, Ben Bernanke, and John Boehner as credit references.
Reply to this commentLinkReport AbuseThe Demtards are fighting tooth and nail to keep spending. So, in 2012 the Fed will finance 100% of the deficit.
Reply to this commentLinkReport AbuseWhy else do you think the price of gold jumped 2% before Bernanke stopped talking?
Reply to this commentLinkReport AbuseDon't want get all Glenn Beck on everyone, but below is a link to an interesting interview with Woody O'Brien from abolishfiatslavery External Link
It's a little long at 44+ minutes but he makes a compelling case for the threat that Mark is writing about.
External Link
This is a link to the 100 thing list that Woody mentions.
External Link
Economic collapse is a lot like a bear attacking a camp site, you don't have to be faster than the bear, just faster than the slowest camper. Are You Ready?
Reply to this commentLinkReport AbuseDon't worry. Once we run out of suckers to buy our treasuries, we can apply for a visa card and put it all on that.
Once that comes due, we'll just apply for a mastercard and transfer the balance.
We could keep that up forever. There's no need to worry.
Reply to this commentLinkReport AbuseSay it with me children! Who is the Federal Reserve? Why it's the American taxpayer! Yay! You are now the biggest holder of America's debt!
Reply to this commentLinkReport AbusePeople talk as if high interest rates would be bad. I and millions of other investors have lost a ton of bond and money market income the past three years because of zero interest rates. Let them go back up again so we can pay our bills!
Reply to this commentLinkReport AbuseHigher real interest rates would be too good to be true. Relief at last for individual savers trying to eke out a return. As the Japanese experience suggests, the central bank and government can suppress rates for an excruciatingly long time. Any uptick in rates here would likely be met by a surge in domestic demand from pension funds, insurance companies, and seniors, all deliriously happy to see anything north of 5%. Don't count on a buyers' strike by foreign central banks either: they fully expect losses on their Treasury purchases. It's a price they're willing to pay to prop up their exporters.
Reply to this commentLinkReport AbuseI've never been able to comprehend how we can borrow from ourselves.
Is there a way for me to loan myself a couple of billion dollars? Just for this weekend, please?
Reply to this commentLinkReport AbuseThe gnomes at the Federal Reserve (and President Obama) have quite a dilemma on their hands. The good part is whatever the Fed does or doesn't do, it's bad news for President Obama.
When the Fed stops Quantitative Easing II (printing 100 billion dollars out of thin air every month to buy Treasury bills) in June there will be an uptick in interest rates on Treasury bonds and bills which will endanger the economic "recovery." This artificial recovery was only created by QE I, II and the other Fed bailouts so when the QE stops, the recovery stops. The resulting dip recession later this year is bad timing since it might endanger the re-election of President Obama in 2012. So, at the slightest hint of a faltering economy after June, Helicopter Ben will probably unleash QE III and IV and so on to keep the stock and housing markets from collapsing and with them Obama's re-election chances. If Ben surprises me and does not unleash further QE, we get the double dip recession which will defeat Obama in 2012.
If Ben follows the script and unleashes QE III that will create hyperinflation that will destroy what's left of the dollar and what's left of the American middle class and economy. Hopefully, the hyperinflation will arrive before November 2012 and we will at least have the silver lining of getting rid of Obama while we're paying Weimar Republic prices for food and energy and all the stuff at Wal-Mart.
Lewis Forro
Reply to this commentLinkReport AbuseVirginia Beach, VA
Your colleague Ramesh Ponnuru would take issue with your claiming "QE2 has been by all accounts a flop." Unless, of course, he changed his mind since writing "Not Enough Money: Why QE2 worked" for the April 4th edition. Just saying...
Reply to this commentLinkReport Abusechrisboltssr,
Your ignorance of the Federal Reserve is showing. We (the U.S. Taxpayer) do not own it. It is owned by... (drum roll please).... the member banks.
LOL, So, the great reform of the Banking Industry back in the day gave them the power to print money. Sheesh.
Reply to this commentLinkReport AbuseFirst off, QE2 has not been a flop. That's ridiculous. The point of fed policy is to mitigate the effects of the financial collapse by underpinning asset valuations. In that regard, it has worked.
Government spending and debt are not Fed issues. They are political issues that belong to the legislatures. No Fed policy can do anything to change that reality.
All that said, the current arrangements are unsustainable. Those with a vested interest in the status quo will resist change right up to the end. That end will be a collapse that makes the Great Depression look like good times.
Reply to this commentLinkReport AbuseI think there is only a single way out of this mess (debt, pensions, government meds, welfare...all way overdrawn). And I think that way out is coming, no matter what: we will all become millionaires; millionaires that can't afford to fill up the car's gas tank. There's a ton of newly issued $s sitting in the banks, when that starts circulating, it'll wash out whatever pittance of savings I thought I had. *** My cynicism tells me that these guys are expanding the war footing for a single reason, they think that WWII was the stimulus that ended the depression.
Reply to this commentLinkReport AbuseI have an acquaintance that actually did the following: He was unemployed and decided to renovate his house. His wife and he "agreed" that he should be "paid" for his hard work, so he drew a "salary" from their savings to pay himself. You can imagine how that turned out.
Reply to this commentLinkReport Abuse@Zman,
"The point of fed policy is to mitigate the effects of the financial collapse by underpinning asset valuations. In that regard, it has worked."
Yes, Bernecke created another asset bubble (this time in stocks and commodities). And you convienently ignore that the Fed has been the only buyer of T-Bills (ie US debt). So, in that case the Fed is complicit in running up the defecit. The Fed's balance sheet now holds some $2 trillion of US debt. The government is in effect lending to itself -something Bernecke promised Congress in 2009 he would not facillitate. As someone pointed out Friday, what's the use of taxes if all the federal government has to do is borrow from itself.
Five dollar a gallon gas and Two thousand dollar an ounce gold will here before Christmas. And the Fed is to blame.
Reply to this commentLinkReport AbuseZman said QE2 has been a success because "[t]he point of fed policy is to mitigate the effects of the financial collapse by underpinning asset valuations." That is not correct. TARP -- Troubled Asset Relief Program -- was intended to rescue the toxic loan assets. The point of QE2 was to stimulate the economy and reduce unemployment. Based on those goals, QE2 has been a failure
Reply to this commentLinkReport AbuseSteyn, as usual, is spot on.
And as a struggling layman in his chorus I will add the following:
The US Dollar is one of many world paper fiat currencies; its purchasing value is fiduciary ~ it is based on "trust".
No gold. No silver. No land. Just "trust".
What happens when the American people - and then the world community - lose faith in this "trust"?
The US Dollar will become merely stacks of green paper festooned with presidents and patriots symbolizing broken promises and hollow will.
Sad ending and epitaph for the likes of Washington, Jefferson, Lincoln, Hamilton, Jackson, Grant, and Franklin.
"Obama and Greenspan lied - the US Dollar died".
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