THE US National Debt Thread pt 2 (merged)

[dbruning]

Why aren't the OPEC guys using the extra profit to buy gold instead? Surely they see that the treasuries they are buying are going to pay off less in the future?

Or do they realize that if the US goes down the game ends?

[AgentR11]

OPEC's lifeline depends on the ability purchase US grain. All US farms will be operating with dollar debt, dollar taxes, dollar payrolls, dollar maintenance, dollar inputs, etc. Gold, may or may not be the best way to preserve wealth, but if your ability to stay in power, living the high life in wondrous palaces depends on the rabble always having bread; well, you may just want to sit on dollars, because short of a 2012 Movie II Live; dollars gives you grain, grain gives you peace, peace gives you luxury in your palace.

Simple.
For those of us living in the US, it doesn't work the same; our incidental income or even government subsidy payments will always be sufficient to purchase adequate grain; so gold or stocks or whatever look to be somewhat safer.

[Keith_McClary]

WSJ: Fed Buying 61 Percent of US Debt

The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.

"Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis," Goodman writes.

Goodman also warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.”

"This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits."

The U.S. government is growing increasingly more dependent on borrowing to finance itself, with net issuance of Treasury securities hitting 8.6 percent of gross domestic product (GDP) on average per annum, more than double levels before the crisis.

Fed intervention in the government debt market makes demand for Treasury bonds appear higher than it really is, as foreign creditors and other investors have fled U.S. government debt instruments and are looking elsewhere until the government makes serious attempts to curb spending and narrow its gaping deficits.

Goodman notes that foreign investors like Japan and China that once scooped up U.S. debt are shunning it. In 2009, such foreign purchases of U.S. debt amounted to 6 percent of GDP and has since falled by over eighty percent to a paltry 0.9 percent.

Without foreign buyers and a shrinking base of U.S. corporate and bank buyers, the Treasury has had to resort to the Federal Reserve itself to make the purchases. The Fed purchasing not only makes up the shortfall, but can keep long term interest rates artificially low.

"The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit," Goodman writes.

"Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit."

[smiley]

WSJ: Fed Buying 61 Percent of US Debt

That doesn't surprise me at all. Last year's budget deficit of the US government was as large as the whole economy of Australia

The US is putting out more debt than the rest of the world can finance, so the only one who can create the amount of money needed to keep things going is the FED. And since the FED artificially keeps rates low, nobody else will be interested in buying US debt.

Unless the US gets serious about the budget deficit, and allow for more realistic interest rates on their securities, QE4,5,6,7,8..... are a guarantee.