Fed Reserve Purchased 61% of US Treasury Issuance in 2011

Discussion in 'Economy' started by Paulie, Mar 28, 2012.

  1. Paulie
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    Paulie Platinum Member

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    Lawrence Goodman: Demand for U.S. Debt Is Not Limitless - WSJ.com
    This isn't a problem as long as we can continue to strong-arm nations into using the USD for trade. Money for all that war is limitless, because we can continue to print it and fund the wars.

    It's all good, because Bernanke is a prodigy...a genius...he'll figure out how to exit from all of this money creation before inflation becomes a problem.

    Just trust him.
     
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  2. DSGE
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    DSGE VIP Member

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    The Fed isn't giving the government money. The Fed bought T-bills in the secondary market; bills already issued. The Fed isn't allowed to, and doesn't, fund government spending. They swapped out T-bills for reserves at a bank. Those reserves aren't permanent. It's exactly the same as normal. Investors lend to the government, the government can only continue to spend so long as private investors are willing to lend to them.

    That was figured out before they even implemented QE. They have IOR to control the Fed Funds Rate, and can combine that with reserve-draining facilities.
     
  3. EdwardBaiamonte
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    EdwardBaiamonte Gold Member

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    Yep, inflation is a thing of the past even though we just had a near death experience because the Fed inflated the housing market and failed to notice it.

    Bernanke is always right on top of things:

    Jan. 10, 2008:

    “The Federal Reserve is not currently forecasting a recession.”
     
  4. Trajan
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    Trajan conscientia mille testes

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    from the link-

    But in recent years foreigners and the U.S. private sector have grown less willing to fund the U.S. government. As the nearby chart shows, foreign purchases of U.S. Treasury debt plunged to 1.9% of GDP in 2011 from nearly 6% of GDP in 2009. Similarly, the U.S. private sector—namely banks, mutual funds, corporations and individuals—have reduced their purchases of U.S. government debt to a scant 0.9% of GDP in 2011 from a peak of more than 6% in 2009.
     
  5. Trajan
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    Trajan conscientia mille testes

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    some other fun facts to add ot the bonfire- ......current outstanding US Treas public held debt.is $10.7 trillion, $8 trillion has to be paid in the next 7 years. $5 trillion is due in the next 3 years.

    The rates on 3 month T bills will rise above 2% in the next 3 years ( they are at like an insane .1%).


    At a 2% rate thats roughly 230 Billion a year in interest. IF we move back, and, we will, to the historic rates above 5% ( what we paid in 2007) thats what? above 600 billion a year...if the economy spins up and/or we don't cut spending we will have to raise rates to kill inflation, but you know what means, interest rates will climb....and taxes will simply have to rise which has its own downside.
     
  6. Toro
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    Toro Diamond Member

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    Paulie is right. The Fed is funding the Treasury. During several of the QE operations, the Fed was buying T bills a few days after they were issued by the Treasury. That technically isn't monetization, but practically it is. They're printing money.

    Given that these geniuses didn't see the housing bubble nor the tech bubble, here we are at the zero bound, we should be more than a little skeptical about the Fed's ability to forecast and deal with inflation.

    Down the rabbit hole we've gone.
     
  7. Toro
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    Toro Diamond Member

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    A colleague of mine had Austin Goolsbee at his place a few months ago. After "10 glasses of wine," Goolsbee told him that the plan was to inflate away the debt.

    FWIW.
     
  8. Middleoftheroad
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    Middleoftheroad Active Member

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    No real surprise there, it doesn't take much inflation to inflate out the debt, it happened after WWII and the 50s-60s were known as the golden age of capitalism. It is actually quite easy to inflate away the debt as long as your deficit is relatively low, the question is, whether they will ever get the deficit low enough.
     
  9. TakeAStepBack
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    TakeAStepBack Gold Member

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    Are you high? The debt consolidation from the inflationary measures (which actually they curtailed rather than expanded, part of the prolong) was actually reconcilable. The 16 trillion and counting is not. To top that, the confiscation of hard money mitigated the process as currencies of the world adjusted, began to float and came out hard of the classical gold standard. You're comparing apples to plutonium.

    The next financial crisis is going to be the shock around the world that ends the current currency wars of import/export currency inflation. How it plays out remains to be seen.
     
  10. Middleoftheroad
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    You are trying to over complicate it. It is very simple. If the deficit is 1% of GDP and inflation is 2% then your debt begins to magically become smaller. A more real life and more accurate example would be if the deficit was 3% and GDP growth was 4% then your debt-gdp ratio goes down.
     

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