Submitted by Mark McHugh
The Dirty Secret of the Debt Ceiling Debate: Nobody Wants Treasuries
On this side of the rainbow, “How much
money should an uncreditworthy entity be allowed to borrow?” is a
rhetorical question. In Washington DC, it’s a topic of much
rhetoric. In fiscal year 2009 Congress borrowed 53.5 cents of every dollar they spent. In FY2010 they borrowed 48 cents of every dollar (*check your numbers, Santelli). So they’ve borrowed and spent 3.5 Trillion to produce 255 Billion in GDP growth (7%
efficiency!), never even bothered to pass a budget for FY2011, and
still haven’t managed to get a single bankster put in jail. Now these
whores are lecturing us about “moral obligations.” They also swear
they’re gonna straighten up and fly right this time.
There is one little detail they forgot to mention – no one actually wants to lend them money. Welcome to the last resort.
Everybody knows that the Federal Reserve
has the unique ability to create money out of nothing. What most don’t
know is the Fed, not the Treasury, provides most of the explanations
as to who is buying Treasuries (read the footnotes). So to those who
said, “I told you so!” when the Treasury revised China’s holdings by
$268B in February, welcome to the pee-pee in your coke moment. That
revision brought China’s purchases to $577B in the two years period
ending June 2010. That was:
- More than 5.5% of China’s GDP.
- 116% of China’s trade surplus with the US.
- More than 4 times China’s defense budget.
And you swallowed it. Of course had you
done even a little research you’d have understood that the data is
about as helpful as an eight month old snapshot of the Universe:
collection of accurate country-level data on cross-border financial
activity ranges from straightforward to virtually impossible, depending
on the type of data to be collected and the method of collection”
~From “Why Treasury’s Data is Crap”
by The Federal Reserve
can hear you still clinging to your Scooby-Doo thesis, but anyone who
speaks of “demand” in the US Treasury market at all displays their
ignorance. Like this is some giant game of Hungry, Hungry Hippos. Take a peak at this report
and you’ll see that ownership is an antiquated concept when discussing
US debt. Transactions of long-term Treasuries with foreigners during
the last two fiscal years totaled more than $50 TRILLION, ($160,000 per
US citizen) . So if you insist on having a six year-old understanding
of things, I suggest Gnip-Gnop.
Speaking of six year-olds, I blame the tooth fairy for
all of this. Most American children’s first brush with economics is
the notion that somebody or something out there is actually willing to
pay money for their crummy, little teeth. It is a convenient lie that
distracts children from the pain and anxiety of losing body parts. Most
of us evolve beyond this delusion, the rest become US congressmen and
TV pundits. Face it America, no one wants your debt. The tooth fairy
is all you’ve got left, and it’s been that way for a while.
When I fill up at the local gas station using my debit card, the
money is gone from my account before I can drive home and log on to my
bank’s website (less than 5 minutes). Details about Treasury purchases
are trickled out at an agonizingly slow pace that literally takes years
to complete. That’s right, years. This
time delay, combined with explanations that are vague at
best make intelligent discussion about purchasers of US Treasuries
impossible. The more you dig into the data, the less sense it makes. With the recent release of the Fed’s discount window activity,
I’d like to know how many believe demand for the last 3.5 Trillion of
US debt wasn’t fueled entirely by the Fed. Now they’re playing Got your nose with us.
So the next time Maria Bartiroma asks Lady Gaga, or whatever
sock-puppet she happens to have on her show, “Who will buys US
Treasuries when the Fed steps away?” An enlightened response might be,
“I have no idea who was buying US Treasuries before the Fed stepped in.
Do you Maria?” To which she will most likely reply, “So what sectors do
you like going forward?”
*Generally I shy away from correcting hot-headed
Italian-Americans, but I believe Rick Santelli values truth and
accuracy. I’m not sure how Rick calculated his recent claim that the
government borrows 43 cents of every dollar they spend, but here’s how I
calculated my numbers:
In FY2009 & 2010 government spending was $3.5177T and $3.4558T respectively.
Total borrowing was $1.8851T for FY 2009; $1.6518T for FY 2010
Source: http://www.fms.treas.gov/bulletin/b2011_1.pdf (Table OFS-2)
US GDP 2008: $14.369T (World Bank – 2010 data not available)
US GDP 2010: $14.624T (IMF)