WSJ Op-ed: Federal Reserve buying 61 percent of U.S. Debt

March 30, 2012 by · Leave a Comment
Filed under: Opinion 

Being that our monetary units come into existence as a debt instrument ie: U.S. Treasury Bond, I can not fathom how issuing more “debt” is going to solve a fundamental problem of having too many obligations that only are paid with the issuance of new debt.  If you don’t believe me, then calls the U.S. Treasury and ask them where your tax money goes and what it pays for?  Hint:  It doesn’t go to pay this years current fiscal budget.   It is going to pay past budgets and interest tied to the bonds that were issued when we needed to do that spending.

It seems that our government is hoping that literally “buying” time is somehow going to get our economy the time it needs to repair the damage that has been done since the Vietnam War era that is a notable event that we started issuing debt to cover when we were not willing to tax the people appropriately to pay for.  If we did not have a policy and supports “free trade” which in turn has sent many living wage jobs overseas to drive down prices and increase profits to our corporations.  The problem with this line of thinking is that there is a breaking limit and we have crossed that line and now we are seeing income and spending by the average person shrinking while prices in areas we exclude in the CPI (Consumer Price Index) are rising (food & fuel).

I believe we are in a era of sustained high unemployment along with a majority of the American population being pushed into some sort of government assistance program.  This will not continue forever and the longer it takes us to address these fundamental issues, the harder the transition will be and more citizens will be hurt because of our collective lack of action.  If you wanted “my” solution to the bring it would go like this:

Some Solution Suggestions:

– Changed Debt based Monetary issuance into Asset based issuance, over time retire all our current obligation in good faith.

– Review and or Reform all entitlement programs

– Change the policy of “free trade” into “fair trade” where we recognize that our market is sought after and we would not allow corporations to dump finished products on our markets while evading wage and pollutions laws

– Set real limits to private financing of campaign elections (state & federal) so our representatives are forced to take more time for regular citizens and drastically less from lobbyists and wealthy donors

– Enforce the rule of law in all cases

– Support public education, we need more educated citizenry, this creates more informed voting and that should provide better policy decisions from the representatives that sway these more educated voters.

I could go on about a million more little issues that have compounded to create this large problem we are dealing with.  Lastly, read your history, it helps.  Happy Friday!

Money News – 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.”

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Federal Reserve now largest owner of U.S. Gov’t Debt – surpassing China

November 17, 2011 by · Leave a Comment
Filed under: Credit News 

No surprise here, this is part of the result you receive when you do quantitative easing and try and keep it a sterile operation.  The central banks racks up your public debt and their balance-sheet explodes!  I just do not see any way this will not end in some sort of general price inflation.   We need to get serious about getting our fiscal house in order or order will be brought to our financial house.  If Europe and the Euro continue to decline, we will most likely see more stimulus and that will bring increased buying of government debt by the U.S. central bank.

CNS News (Terence P. Jeffrey) –  At the close of business on Tuesday, the debt of the federal government exceeded $15 trillion for the first time–with the largest single owner of the publicly held portion of that debt being the Federal Reserve.

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Video: David Stockman ‘We are digging ourselves in debt, pretending its working’

September 30, 2011 by · Leave a Comment
Filed under: Videos 

He hits it on the head.    I like his poise during the interview when CNBC kept peppering him with questions that try and get him to say something cheery and happy.   WE ARE PAST THAT, ALL OPTIONS WILL BE PAINFUL.  We just need to do it now  and work through it and be happy in a decade once the structure issues have been fixed and we can see a sustainable and durable recovery.  Or in short, a real recovery.

Video (CNBC):

Russia reduces its U.S. debt holdings by almost 30%

June 21, 2011 by · 1 Comment
Filed under: Global News 

Truth be told, Russia is not a super-major debt holder for the United States.  But, in these times of uncertainty with out debt ceiling, Greek crisis and effects of Japan over the next 6-12 months, this does not bode well.  Right now a substance more precious than gold is in short supply, and that is confidence.  Having any major trading partner, reduce there exposure to your debt by that much is not a good sign for what they figure is more likely than not in our future.    An outright default is very very unlikely.  Increasing the monetary base to reduce our debt load is much more likely and they is a driving reason for Russia’s debt reduction move.

I just don’t see the political will in our current configuration to take the real needed steps to reduce not only the size of government but also the amount of spending that is projected.  It is totally unsustainable.   How do we reduce it?  We had major trouble just to cut $34 billion from our last budget of over $1.5 trillion.  If we could not even handle that, then what would tell us as a people we can do real cuts.  What is sad is that Bush spending (minus war) looks tame to what we are dealing with now.   My conclusion is that we will have to go through a major economic shock in the system where many people will be affect in ways we have not seen in 30+ years to get people motivated to come up with a plan that will work for us and doesn’t require us to continually go into debt to execute it.  This is possible.

The Street – A top Russian economic official says his country is likely to continue decreasing the share of its portfolio that consists of U.S. debt, according to a published media report. “The share of our portfolio in U.S. instruments has gone down and probably will go down further,” said Arkady Dvorkovich, chief economic aide to Russian President Dmitry Medvedev, according to a report on The Wall Street Journal’s Web site.

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U.S. debt credit rating is danger of losing triple A status

March 15, 2010 by · Leave a Comment
Filed under: Credit News 

According to Moody’s in their quarterly report cited the rising federal budget as a reason why the United States debt rating has continued to be under review.  Going forward we can assume that either a significant increase in taxes is coming, large reduction in spending (not likely in the current climate) or issuance of more debt & currency (very likely).  In the latter scenario, the U.S.’s rating would be under review and likely will experience a reduction.

Fortune – The United States isn’t in jeopardy of losing its gold-plated credit rating, though by one measure America is closer to the ratings-downgrade danger zone than Spain.

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