The Corner

Sauve Qui Peut

Who holds the biggest part of our national debt? We do! — or we soon shall, according to this vent from Bill Wilson at NetRight Daily.

Now, the central bank owns over $808 billion in treasuries. And it still has over $1.086 trillion of MBS in its portfolio left to sell. Since the middle of August, the Fed has been buying about $4.35 billion of treasuries a week, a pace that will add another $226 billion to the Fed’s share of the national debt, bringing it up to over $1 trillion by August 2011.

That would be more than either China or Japan hold, and make the Fed the top holder of the national debt in the whole world.

Well, it’s a relief to know that we won’t be in hock to foreigners much longer. We’ll just be in hock to, er, ourselves — kinda like the mythical English town whose inhabitants all made a living by doing each other’s laundry.

Incidentally, if you’re wondering how the Fed acquired a trillion-odd dollars worth of mortgage-backed securities, here’s the believe-it-or-not story from back in August about how it was done by a team of Fed clerks working in a four-cubicle office, the team headed up by — I could swear, from the picture — one of my local elementary-school dinner ladies.

They told us they were just 61 cents short. (In other words, they bought $1,249,999,999,999.39 worth of mortgage-backed bonds.)

The Fed was able to spend so much money so quickly because it has a unique power: It can create money out of thin air, whenever it decides to do so. So, Dzina explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — “and voila, money is created.”

Just like that! So easy!

That gurgling sound you hear? That’s another watertight compartment filling up.

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