Tag Archives: US government debt

Who Bought the $6.5 Trillion in Treasuries Piled on the Incredibly Spiking US Debt in 22 Months? Who Holds the $30 Trillion? By Wolf Richter

Posted on February 18, 2022 | Leave a comment

The banks and the Federal Reserve have been absorbing Treasuries, and virtually guaranteed losses. From Wolf Richter at wolfstreet.com:

The question is particularly hot because Treasuries are now ugly instruments with the worst punishment yields ever.

In face of the incredibly spiking US gross national debt that just hit $30 trillion after having spiked by a mind-boggling $6.5 trillion since March 2020, the steamy-hot question is this: Who the heck is buying and holding all these Treasury securities?

The question is particularly hot because these are very unattractive instruments: Yields are still well below 1% for most short-term Treasury bills, and even the 10-year Treasury maturity yields only around 2%, while CPI inflation has blasted off and hit 7.5%, creating the worst punishment yields ever. To top it off, the most reckless Fed ever is still repressing interest rates and is still, though at a much slower pace, printing money.

The whole thing is a tragic clown-show, and yet every single one of the Treasury securities was bought and is held by some entity. Who are they? This is my quarterly update on who is holding this debt, and it’s an increasingly important question for increasingly iffy times.

Foreign Creditors of the US government.

Foreign holders of Treasuries: $7.74 trillion, a record, up by $790 billion (+11%) since March 2020, and up 9.5% year-over-year, according to the Treasury Department’s Treasury International Capital (TIC) data.

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A Sinking Ship of State Drowns Everyone, by Lawrence Kadish

Posted on June 2, 2021 | Leave a comment

Debt is always weakness. As the US government flounders under its mountain of debt, other countries will take advantage of its fiscal weakness. From Lawrence Kadish at gatestoneinstitute.org:

  • To be clear, the spending bill is actually the creation of a national debt so massive that it has the means to destabilize a democracy dependent on a functioning economy.
  • For the Chinese Communist Party, seeking to master the 21st Century as the one global superpower, it represents a strategic victory without so much as firing a single bullet. They know that an economically weakened America cannot possibly sustain its military leadership when it is burdened with paying down a massive debt. Our allies and unaligned nations recognize this threat as well, and will reinvent their relationship with China if they believe America’s best days are in the past.
  • What makes the Administration believe that Corporate America would not respond with massive restructuring to avoid a confiscatory tax bill — or passing the added cost on to the consumer, or moving the company’s headquarters offshore to a country with a lower corporate rate — to avoid the threat of losing its international competitive edge? Corporations have good accountants, too.
  • Few debate the idea that our nation’s infrastructure is in need of serious attention but the level of political dishonesty in characterizing the Biden plan as “infrastructure” has even made many in his own party queasy. Significant portions of the bill are earmarked for “environmental” agendas and seeming favors to campaign donors, such as billions in subsidies for electric vehicles. The proposed bill cries out for more sunlight and vast quantities of disinfectant.
  • This recipe for an economic apocalypse comes at a time when new job creation has stagnated and the specter of a serious inflation has begun to emerge…. As historians will tell you if we have the wisdom to listen, no one escapes the devastation of a debtor nation. No one.
(Image source: iStock)

One suspects that historians and economists will consistently agree on one irrefutable fact: nations that allow their economies to bathe in red ink are destined to fail. This failure takes many roads and differs in timing, but massive, uncontrolled national deficits eventually reduce a nation state to being a pauper, a pariah — and pathetic.

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Posted in Collapse, Debt, Economics, Economy, Foreign Policy, Geopolitics, Governments, History, Taxes

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The US Government Debt Crisis, by Alasdair Macleod

Posted on April 27, 2019 | 3 comments

There’s no way out if the debt hole the US government has dug itself. From Alasdair Macleod at goldmoney.com:

This article explains why the US Government is ensnared in a debt trap from which there is no escape. Its finances are spiralling out of control. In the context of a rapidly slowing global economy, the budget deficit can only be financed by QE and bank credit expansion. Do not draw comfort from trade protectionism: it will not prevent the trade deficit increasing at the expense of domestic production, unless you believe there will be an unlikely resurgence in personal saving rates. We can now begin to see how the debt crisis will evolve, leading to the destruction of the dollar.

Introduction

At the time of writing (Thursday April 24) bond yields are crashing, the euro has broken down against the dollar and equities are hitting new highs. Obviously, equities are taking their queue from bonds. But bond yields are crashing because the global economy is sending some very worrying signals. Equity investors will be hoping monetary easing (which they now fully expect) will kick the can down the road once again and economies will continue to bubble along. They are ignoring some very basic economic facts…

Regular readers of my Insight articles will be aware of strong indications that the expansionary phase of the credit cycle is now over, and that we at grave risk of falling headlong into a global credit and systemic crisis. The underlying condition is that economic actors and their bankers accustomed to credit expansion are beginning to realise the assumptions behind their borrowing commitments earlier in the credit cycle were incorrect.

That’s why it is a credit cycle. It is driven by prior credit expansion which corrals all producers into acting in an expansionary manner at the same time. Random activity, the condition of a true laissez-faire economy, ceases. Instead, credit conditions act on profit-seeking businesses in a state-managed context. Entrepreneurs take the availability of subsidised credit to be a profit-making opportunity. The same cannot be said of governments because they do not seek profits, only revenue.

If a government acts responsibly it should never have to borrow, except perhaps in an emergency, such as to defend the country against invasion. The evolution into unbacked fiat currencies has changed all that by permitting governments to finance themselves through the printing press.

There is only one way a government funds the excess of spending over tax revenue without it being inflationary, and that is to borrow money from savers. There is a downside to this. The government bids for existing savings, including those held in pension and insurance funds, diverting them from other borrowers. In the 1980s this was described as “crowding out” other borrowers and had the effect of increasing interest rates to the point where these other borrowers stop borrowing. In the post-war years, this has been the consequence of spendthrift socialism.

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Posted in Business, Collapse, Currencies, Debt, Economics, Economy, Government, Trade

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Mr. Trump Attacks Aluminum, Russia Attacks the Debt, by Tom Luongo

Posted on June 17, 2018 | Leave a comment

Is Russia selling its US government debt to retaliate against US sanctions? From Tom Luongo at tomluongo.me:

Looking at the unfolding trade war between Donald Trump and the world the phrase that should come to mind is “One good turn deserves another.”

In the case of the insane sanctions on Oleg Deripaska and Russian Aluminum giant, Rusal, back in April, we finally got some clarity as to how Russia can and will respond to future events.

In yesterday’s Treasury International Capital (TIC) report, we saw clearly that Russia activated its nearly half of its $100 billion in U.S. Treasury debt to buy dollars in April.  More than $47 billion in U.S. debt was dumped into the market to cover the chaos engendered by Trump’s overnight diktat for the world to stop doing business with Rusal.

TIC Report.png

Also of note, U.S. ally Japan continues to shed Treasuries at around 8-10 billion per month.  Ireland dumped $17 billion and Luxembourg nearly $8 billion.

While China dropped $5 billion this is noise, ultimately as its holdings of U.S. debt have been stable for over a year now.  What is interesting is Belgium, the home of Euroclear, seeing a $12 billion inflow.  Likely that’s where some of the Russian-held debt was traded to.

The Russians likely sold from their balance on reserve with the Federal Reserve.  Here’s the latest iteration of the chart I keep for just such an occassion.

USTs Treasury

Rusal’s shares and bonds went bidless but the damage wasn’t contained there as major Russian banks like VTB and Sberbank were hit hard as well.   So, while Rusal didn’t have much in the way of dollar-denominated debt.  It did have major dollar-related obligations as accounts receivable on its balance sheet because of the sheer size of its trade conducted in dollars.

And that’s why there was such an outflow from Russia’s stock of Treasuries.  But, here’s the thing.  It didn’t matter one whit.  Why?  It didn’t undermine Russia’s Foreign Exchange Reserves.

Russia Forex Reserves

No Dip in Russia’s Foreign Exchange Reserves During Rusal Crisis

Russia just sold Treasuries into the market, raised dollars and swapped out Rusal’s bonds, holding them as collateral for a Repo.

Bank of Russia debt.png

The Bank of Russia Intervened to keep Rusal and Other Banks Solvent by Dumping U.S. Treasuries

This went on for most of the month and into May.  Zerohedge’s reporting on this leads the way. 

To continue reading: Mr. Trump Attacks Aluminum, Russia Attacks the Debt

 

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The Depression Playbook, by Jeff Thomas

Posted on May 29, 2018 | Leave a comment

The economic and financial situation before the Great Depression is not comparable to the current economic and financial situation today. The world is far more indebted today, which means the impending catastrophe will be far worse. From Jeff Thomas at internationalman.com:

A crash is coming, and it may be terrific…The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed…Wise are those investors who now get out of debt.

— Roger Babson, September, 1929

In the run-up to the 1929 crash, which heralded in the Great Depression, many pundits claimed that the new highs in the market signified that the business cycle had been “repealed.”

Stocks had never enjoyed such a bull market before, and this led many to believe that “the sky’s the limit.” All over the US, people put all the money they could find into stocks. Then, wanting to buy more, they bought on margin. Then, wanting still more, they borrowed privately to buy on margin—a double-dip into debt.

In essence, this meant that a large portion of the extreme bull market was the result of stock investments that were made with money that didn’t exist—a mere “promise” to somehow pay, with nothing to back that promise up.

This, of course, is the very essence of a bubble. And, sooner or later, bubbles pop.

After the crash, the pundits that had driven the market ever-upward were all but speechless, saying only, “No one could have predicted this.”

However, it was predicted by those who understood market bubbles. Roger Babson, in particular, made the statement above to the Annual Business Conference in Massachusetts on 5th September, 1929. At that time, he was vilified by Wall Street for making such an obviously false proclamation, yet, after the crash, he was again vilified for having brought on the crash with his statement.

Neither was true and no lesson was learned by those who created the crash. Yet, it was the logical conclusion to the buildup of events. In fact, there could have been no other outcome… and the same is true today.

The $20 trillion debt that the US government has created is far beyond anything the world has ever seen and, in fact, it exceeds the total of all other countries combined.

To continue reading: The Depression Playbook

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Who Will Buy Trillions Of US Treasuries??? by Chris Hamilton

Posted on February 22, 2018 | Leave a comment

The coming onslaught of US government debt will overwhelm the market. From Chris Hamilton at economica.com:

As of the latest Treasury update showing federal debt as of Wednesday, February 15…federal debt (red line below) jumped by an additional $50 billion from the previous day to $20.76 trillion.  This is an increase of $266 billion essentially since the most recent debt ceiling passage.  Of course, this isn’t helping the debt to GDP ratio (blue line below) at 105%.

But here’s the problem.  In order for the American economy to register growth, as measured by GDP (the annual change in total value of all goods produced and services provided in the US), that growth is now based solely upon the growth in federal debt.  Without the federal deficit spending, the economy would be shrinking.

The chart below shows the annual change in GDP minus the annual federal deficit incurred.  Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced.  The net difference is shown below from 1950 through 2017…plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits.  It is not a pretty picture and it isn’t getting better.

Even if we assume an average of 3.5% GDP growth (that the US will not have a recession(s) over a 15 year period) and “only” $1 trillion annual deficits from 2018 through 2025, the US still continues to move backward indefinitely.

So, for America to appear as if it is moving forward, it has to go backward into greater debt?!?  If you weren’t troubled so far, here is where the stuff starts to hit the fan.

With the change to the Unified budget, effective as of 1969, the Social Security surplus was “unified” into the federal budget.  The government gave themselves a ready buyer for US debt while simultaneously allowing the SS surplus to be spent in “the present”.  Congressionally mandated to buy US debt, from 1970 to 2008, the Intra-Governmental Holdings (over half from the Social Security surplus) purchased over 45% of all federal debt issued.  This meant “only” 55% of US debt was auctioned into the market, or “marketable debt”.

To continue reading: Who Will Buy Trillions Of US Treasuries???

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Two Elephants In The Room That The GOP Has Completely Forgotten, by David Stockman

Posted on February 4, 2018 | 1 comment

The elephant party is ignoring two elephants in the room: the central bank’s policies and debt. From David Stockman at davidstockmanscontracorner.com:

The US economy is threatened by two giant problems which cause all others to pale into insignificance. We are referring to a rogue central bank that has become an absolute enemy of capitalist prosperity and a fiscal doomsday machine that is hostage to the ceaseless budgetary demands of the Warfare State, the Welfare State and the Baby Boom’s demographic imperatives.

Needless to say, both ends of the Acela Corridor are completely oblivious to these twin menaces. Indeed, they are the proverbial elephants in the room, thereby giving rise to a considerable irony: To wit, the GOP party of the elephant, which is supposed to be the palladium of financial rectitude in American politics, has forgotten about them completely.

For instance, in his triumphalist SOTU, the Donald didn’t utter so much as a single syllable about the Fed, the budget, entitlements, the $1 trillion per year deficits looming ahead or the nation’s soaring public debt.  Yet after omitting virtually everything which counts, he went on to crow about how he is making America Great Again (MAGA) by making better trade deals and borrowing untold sums from future generations.

That is to say, when he did veer into fiscal territory it was to demand repeal of the sequester caps, which are the one thing that has slightly braked runaway spending, and to boast about his own favorite deficit financed twins: The $1.5 trillion tax cut already passed and the additional $1.5 trillion infrastructure boondoggle he proposed to lob on top.

Oh, and there was also his $33 billion Mexican Wall, 5,000 new border patrol agents (in  addition to 20,000 already) and Federalization of two purported crises—the opioid epidemic and gangs like MS-13—-which should be a matter for local government, if the latter have any purpose at all.

As to the Wall Street end of the corridor, we got a good reminder of that during our appearance on Bloomberg TV last evening. The host objected to our fiscal warnings on the grounds that these threatened CR (continuing resolution) showdowns and debt ceiling crises arise episodically, but after a lot of partisan fire and brimstone they always get resolved.

The implication was that the fiscal file embodies just a messy process equation, but the pols eventually and reluctantly do their jobs. Accordingly, Wall Street’s cynicism about the matter is understandable and justified as in: Nothing to see here. Move along!

To continue reading: Two Elephants In The Room That The GOP Has Completely Forgotten

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Just Wait a Little While, by James Howard Kunstler

Posted on August 7, 2017 | 1 comment

Prompted by the coming financial crisis, America and Americans will have to change dramatically. Better prepare yourself. From James Howard Kunstler at kunstler.com:

The trouble, of course, is that even after the Deep State (a.k.a. “The Swamp”) succeeds in quicksanding President Trump, America will be left with itself — adrift among the cypress stumps, drained of purpose, spirit, hope, credibility, and, worst of all, a collective grasp on reality, lost in the fog of collapse.

Here’s what you need to know about what’s going on and where we’re headed.

The United States is comprehensively bankrupt. The government is broke and the citizenry is trapped under inescapable debt burdens. We are never again going to generate the kinds and volumes of “growth” associated with techno-industrial expansion. That growth came out of energy flows, mainly fossil fuels, that paid for themselves and furnished a surplus for doing other useful things. It’s over. Shale oil, for instance, doesn’t pay for itself and the companies engaged in it will eventually run out of accounting hocus-pocus for pretending that it does, and they will go out of business.

The self-evident absence of growth means the end of borrowing money at all levels. When you can’t pay back old loans, it’s unlikely that you will be able to arrange new loans. The nation could pretend to be able to borrow more, since it can supposedly “create” money (loan it into existence, print it, add keystrokes to computer records), but eventually those tricks fail, too. Either the “non-performing” loans (loans not being paid off) cause money to disappear, or the authorities “create” so much new money from thin air (money not associated with real things of value like land, food, manufactured goods) that the “money” loses its mojo as a medium of exchange (for real things), as a store of value (over time), and as a reliable index of pricing — which is to say all the functions of money.

To continue reading: Just Wait a Little While

 

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