The tooth fairy is going to pay the US government’s $23 trillion and counting debt. From Bill Bonner at bonnerandpartners.com:
YOUGHAL, IRELAND – Today, amid all the noise and distractions of Donald J. Trump’s impeachment, we return to the slo-mo financial calamity inching towards the U.S.
First, some context. Here’s what is happening:
The two main factions of the Deep State – Republicans and Democrats – are fighting for control of the government. The headlines tell us about every bomb thrown and missile launched in the impeachment proceedings.
Government is essentially a win-lose enterprise. Its internal battles – even when disguised as solemn rituals – are mostly to determine who gets ripped off by whom.
Most likely, the present drama will end in a draw. Mr. Trump will be impeached by the Democratic-controlled House… but not heaved over the side by the Republican-controlled Senate. And after the impeachment battle is over, the war will go on; it will simply shift to a new front – the 2020 elections.
By mark-to-market accounting, or as it’s sometimes known, honest accounting, the Fed’s losses on its bond portfolio are greater than it’s capital. In other words, it’s broke. From Simon Black at sovereignman.com:
In the year 1157, the Republic of Venice was in the midst of war and in desperate need of funds.
It wasn’t the first time in history that a government needed to borrow money to fight a war. But the Venetians came up with an innovative idea:
Every citizen who loaned money to the government was to receive an official paper certificate guaranteeing that the state would make interest payments.
Those certificates could then be transferred to other people… and the government would make payments to whoever held the certificate at the time.
In this way, the loan that an investor made to the government essentially became an asset– one that he could sell to another investor in the future.
This was the first real government bond. And the idea ultimately created a robust market of investors who would buy and sell these securities.
When a government’s fortunes changed and its ability to make interest payments was in doubt, the price of the bond fell. When confidence was high, bond prices rose.
It’s not much different today. Governments still borrow money by issuing bonds, and those bonds trade in a robust marketplace where countless investors buy and sell on a daily basis.
Posted in banking, Currencies, Debt, Economy, Financial markets, Governments, History, Investing, Money
Tagged Bonds, Federal Reserve balance sheet, Insolvency, interest rates