The Ultimate Shell Game: The Federal Reserve Funds 91% Of 2009 U.S. Deficit
In the current hodge podge of abstract finance, it is easy to get lost in the numbers and lose sight of the forest for the trees. Which is why we provide the ultimate simplification: In calendar (not fiscal) 2009, the US grew its budget deficit by $1.47 trillion. In the same time, the Federal Reserve grew its securities holdings from $500 billion to $1.85 trillion, a $1.34 trillion increase. Keeping it simple: 91% of the budget deficit increase in 2009, under the authority of President Obama, was funded by the... United States.
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on Mon, 01/11/2010 - 19:29
#190520
Speaking of Shells:
Track your favorite banker in real time.
A totally cool website that tracks yachts in real time near St. Barth's (I think the whole Caribbean), right now Ellison's 400' Rising Sun is in port along with a bunch of smaller tubs.
TheStreet.ca Live Marine Tracking
on Mon, 01/11/2010 - 19:44
#190538
Thanks Manfred. Now I can keep track of the location of my retirement account.
on Mon, 01/11/2010 - 19:45
#190539
“The Federal Reserve will not monetize the debt.”
-Ben Bernanke, 2009
on Mon, 01/11/2010 - 20:20
#190581
There was a man named Van Praag
Who was quite evasive and vague
Work for G. Sachs, cover your tracks
And spread the 11th plague
If the debt wasn't monetized, it might adversely effect
GS earnings.
on Mon, 01/11/2010 - 20:53
#190619
even after unprecedented FED trillions, they can't get aluminum use up, never mind M1-M3, and GDP more than a couple percent
ha ha, the world improvers are striking out
Centrally planned economies never have and never will survive
on Mon, 01/11/2010 - 20:01
#190552
so is this good or bad? ;-)
on Mon, 01/11/2010 - 20:29
#190593
Good....they didn't hog the whole thing. Left 9% for others.
on Mon, 01/11/2010 - 20:08
#190555
I've been struggling to find a way to explain why this is a problem to those friends of mine who have little/no background in finance or economics (most of them). Usually I get the blank stare after just a few sentences.
I suspect that most Americans have no idea why what's happening is happening, or why it may turn out badly for them. Occasionally I hear things like "where is all this bailout money coming from?" but that's about the extent of it.
The only thing I've found that gets people's attention is the concept of a $5 gallon of gasoline. That seems to distill (pardon the pun) the concept of a weakening US Dollar for them quite nicely.
One exception was a guy who refuses to drink American beer. He caught on pretty quickly when I pointed out that although the price of a can of Guinness hasn't increased, the volume of the can itself has decreased from 500ml to 440ml - effectively a 13.6% price increase. I've heard several similar anecdotes for food products too.
Maybe that's the solution to educating people: beer and gas (again, pardon the pun).
on Mon, 01/11/2010 - 20:57
#190626
what's been working for me is to describe that we now have a centrally planned economy and then i spell U.S.S.R.
that get's their attention and paints quite a nice picture
after that i hit them with the pimp daddy credit card story
on Mon, 01/11/2010 - 21:38
#190668
Instead, you should explain why it is only the United States that can do this - and why, despite the fact that any other country attempting such a thing would collapse into hyper-inflation, prices in the US are surprisingly tame.
When you can explain that, then it will be time for you to leave, Grasshopper.
(HINT: You cannot devalue the world reserve currency against itself.)
on Mon, 01/11/2010 - 21:44
#190676
The next hint: 20 percent unemployment in Spain, Venezuelan devaluation, and the Chinese peg.
on Mon, 01/11/2010 - 22:46
#190735
Isn't this basically levying an imperial tax on the world?
on Mon, 01/11/2010 - 23:42
#190788
bingo...exportation of inflation.
on Mon, 01/11/2010 - 23:51
#190794
Don't you think they'll be a bit miffed at that?
Or are they just as much of fat stupid slobs as we are? "Cool! World of Warcraft is so cheap now in Euros! Wait uhh... why are my taxes getting so high... ooh cool I made level 37 mage!"
on Tue, 01/12/2010 - 13:05
#191220
Actually, the correct answer is reducing wages. When the dollar falls, the currencies of all exporting nations have to fall to maintain competitiveness. This has the effect of reducing wages and prices in thoss countries. Spain uses the Euro, so it cannot devlaue - it, therefore, has to accept higher unemployment or reduce hours of work.
China maintains a peg, so it currency falls along with the US, and Venzuela is devaluing to improve its competitive position.
Remember the Keynesian thesis is that worker will not react as much to a fall in real wages if their nominal wages are unchanged or even increased. Devaluation is one way to effect this.
My conclusion is that Washington has gained control of the economic policy of other countries almost completely, and is pushing a reduction of global wage levels to halt the fall in the rate of profit.
But, what do I know...
on Tue, 01/12/2010 - 16:29
#191568
This is a bizarre formula, the dollar falls relative to the currency of the other exporting nations. To say that if the dollar falls the other nation's currency falls is a logical contradiction. The dollar is plummeting relative to foreign exporting currencies, that is what we are talking about.
I suggest you look at the euro/dollar exchange rates since the euro's inception. Better yet, go to the EU and spend your dollars--bring buckets.
We no longer live in a world where the American markets drives other exporting nations, and we are also a much more export led economy than we were in the past. I have a business in India--it is doing fine. I have to raise wages. I am not doing as much business in the USA though. I do not do business solely in dollars. I could not profitable run my business there in the USA.
Currencies reflect relative value. Nations do not devalue the value of their nations work and wealth arbitrarily based on the dollar's value. All one need to is look at the history of forex in the UK, EU,India or the ME to see the truth of this. In fact, in much of the post war years, the Democrats actually artificially increase the value of the dollar, no doubt to help out the European coreligionists. The Republicans have a tendency to pull the dollar down to a reasonable value. Lately the democrats appear to have abandon this strategy, to put it mildly. If there historically has been any correlation here, it is rather the opposite of what you claim.
Moreover, we are have a much more "rationalized" world economy where the various parts of the supply/value chain are distributed around the world.
what has happened is just what appears to have happened, we have in fact "lost control of the economies" of other country, to the extent that we ever had it.
Your formula smacks more of Marxist cant than it does of sound economic theory.
on Wed, 01/13/2010 - 07:44
#192143
Really? Marxist cant?
You mean to say that there is another country who can run a trade deficit for almost forty years, and a current account deficit for thirty years? You mean there is another nation that could sustain an actual fall in its manufacturing capacity in three of the last seven years even as its stock market rises? And, is there another nation which could increase its fiscal debt to the degree the US has in the past 18 months without seeing its bonds market collapse?
Perhaps there is another nation which could watch its financial sector collapse while its money actually appreciates?
Please, show me this other nation. Show me another nation which can actually force the rest of the world to subsidize its economy.
LOL
on Tue, 01/12/2010 - 04:32
#190881
I agree only in part.
First of all, prices in the US are not that tame...just our way to manipul..pardon "calculate" inflation is more sophisticated (core with no food and oil, geometric, substitution, hedonics, etc...)
Second, compared to less developed economies we spend a less percentage of our income on needed items and commodities (food, energy, etc..) and usually hyperinflation start to bite in that category.
Third, as someone already noted, many countries have pegs to the US dollar so we move in sync
Fourth, there is a lot of inertia (do not underestimate the ignorance and gullibility of the mases), we still have a lot of good reputation in the world, in many areas of technology and science we still remain the top dogs (however that is currently on the wane).
Fifth, a good part of the ultimate backing to our currency is courtesy the US navy fleets circling the planet's oceans...something Argentina and Venezuela do not have.
So we can definitely "stretch it" much more than others...and the fact that the global financial system has been modeled by the anglosphere and that the 3 major rating agencies are based on angloland it does help a lot...they cut us A LOT of slack.
On top of that, the Fed is considerably more sophisticated in its game of smoke and mirrors compared, let's say, to the Reserve Bank of Zimbabwe.
However, in my opinion, I think Japan, with his trade surplus, tremendous productivity and leadership in many industries, can stretch it even more than us....the land of the rising sun deficit is sailing towards 200% of GDP and QE has been a reality for years over there...I doubt we can get that far before the non edible chocolate hits the fan....
on Tue, 01/12/2010 - 12:15
#191159
Some good points here. One comment I hear a lot is, if the US economy is in such bad shape, why am I not seeing anything like all those dismal 1930's depression photos in the history books? Well there is still a lot of fat in the middle class lifestyle. Families think they are getting frugal but they don't know what frugal is yet. They won't find out until they are looking for sales on potatos instead of tv sets.
on Tue, 01/12/2010 - 17:27
#191644
We have a much more extended social safety net today than we did then.
You will not see soup lines because people will get their check directly in the mail...the number of people on food stamps skyrocketed.
You want to see some depressing pictures?? Well Detroit and other cities in the midwest fit the bill perfectly, I did recently watch a very depressing videos about Pennsylvania.
Our unemplyment numbers do not look that bad because of the way we calculate them nowadays...in the 1930s basically everyone above the age of 16 was considered part of the labor force.
However if we consider underemployment and those no longer "attached" to the labor force we are not that far off.
on Tue, 01/12/2010 - 09:32
#190989
To begin with, inflation will take time to appear. In the 70's the time frame was decreased because massived Vietnam War spending was ending just as the Mid East crisis heated up. Inflation was cost-push as well as demand-pull.
Today, we have only cost-push. Demand is way off. Which is why people are expecting deflation. And we'd have it if it weren't for the Fed.
Today's inflation is starting with assets. In essence, we've had a massive inflation already, as the market is up significantly from its lows.
This won't translate into goods inflation for some time - at least until people feel comfortable that their assets are secure. In the meantime, the demand-pull portion will be minor.
I suspect it will take 3-6 more months before inflation starts to be apparent in the US. At that point, the cheerleading and a few faux "good reports" will have people convinced all is well, and they will slowly go back to their profligate ways.
I was astounded at the lack of analysis on the "record $45bb payback" of the Fed to the Treasury. Nobody sat down to figure out the real value of that money. In fact, it's considerably less than the dollars loaned out. Which astounds me, because the average person actually thinks that the Fed can keep the economy afloat AND help reduce the deficit with these "record paybacks". The obvious inflationary nature of this behavior is lost on the average observer.
on Tue, 01/12/2010 - 17:25
#191650
Bingo
The stratospheric asset prices compared to the fundamentals are inflation.
The fact that nowdays investors consider equities just lottery tickets with almost total disregard for cash flow and dividends is inflation.
on Tue, 01/12/2010 - 09:32
#190992
To begin with, inflation will take time to appear. In the 70's the time frame was decreased because massived Vietnam War spending was ending just as the Mid East crisis heated up. Inflation was cost-push as well as demand-pull.
Today, we have only cost-push. Demand is way off. Which is why people are expecting deflation. And we'd have it if it weren't for the Fed.
Today's inflation is starting with assets. In essence, we've had a massive inflation already, as the market is up significantly from its lows.
This won't translate into goods inflation for some time - at least until people feel comfortable that their assets are secure. In the meantime, the demand-pull portion will be minor.
I suspect it will take 3-6 more months before inflation starts to be apparent in the US. At that point, the cheerleading and a few faux "good reports" will have people convinced all is well, and they will slowly go back to their profligate ways.
I was astounded at the lack of analysis on the "record $45bb payback" of the Fed to the Treasury. Nobody sat down to figure out the real value of that money. In fact, it's considerably less than the dollars loaned out. Which astounds me, because the average person actually thinks that the Fed can keep the economy afloat AND help reduce the deficit with these "record paybacks". The obvious inflationary nature of this behavior is lost on the average observer.
on Mon, 01/11/2010 - 22:28
#190715
The way to get your friends' attention is to tell them that every single minute of work they do until early May will go toward paying for the East Hampton mansions of the Wall Street Wizards who got bailout money from the taxpayers. After May, your friends finally get to keep some of the money they earn for themselves, unless the wizards screw up again and need another handout.
on Tue, 01/12/2010 - 17:47
#191677
Your sense of proportion is completely out of whack.
on Mon, 01/11/2010 - 20:05
#190558
At no time do their hands leave their arms.
on Mon, 01/11/2010 - 20:11
#190567
Well, well, well, the correlation from April 09 onward looks to be in the 0.95 range.
Of course this merely circumstantial evidence! :)
on Mon, 01/11/2010 - 20:18
#190575
Since Gold has been on a 9 year run it makes you wonder if this quantitative easing has been going on all this time, but at an accelerated pace lately. And since Gold hasn't spiked too hard the last year, what kind of manipulation is going on in that market to keep it on a 45 degree upward trek--not a 90 degree upward trek?
on Mon, 01/11/2010 - 23:44
#190790
never mind the last 9 years - look at the last 97.
on Mon, 01/11/2010 - 20:20
#190579
And this is ok why?
Argentina and Venezuela have to learn the big lesson:
It's called reserve currency status bitches!
on Tue, 01/12/2010 - 09:27
#190985
... Until the day, of course, when the rest of the world just says "Enough!", and start dumping every single US$ it has ever held (and buys SDR, gold and whatever else replaces the US$).
And that day may be closer than you (or I) think.
on Mon, 01/11/2010 - 20:22
#190584
I am hoping that Benanke's head is removed from his torso by the million man mobs before this is all over.
on Mon, 01/11/2010 - 21:13
#190643
speaking hypothetically, of course.
on Tue, 01/12/2010 - 00:20
#190813
speak for yourself....
on Mon, 01/11/2010 - 20:28
#190588
Here's another scary/pathetic comparison: run the Stimulus\federal spending deficits against the US trade deficit. Last report the US was $30 billion plus a month negative. http://www.census.gov/indicator/www/ustrade.html
If you run those numbers, a significant portion of the 2009 Stimulus package went almost directly overseas, 30% if we ignore other deficit spending, 300+ billion of US wealth gone in a year and borrowed money at that.
The other scary/pathetic comparison, run Local, State and Federal government surplus\deficit levels Pre-and post the Reagan tax cut era. The we think lower taxes will raise government income crowd now has 30 years of hard data to see how that idea turned out.
on Mon, 01/11/2010 - 20:42
#190604
Wonderful comment. Sad that this rather
obvious fact doesn't get more play whenever
talk of Stimulus XVIII comes up.
on Mon, 01/11/2010 - 21:37
#190665
Since the energy balance is inversely related to Fed action the notion that there will be a massive boon from the shrinkage is yet another farce sold the American public. Sure the starving consumer will purchase less - unless its borrowed money for stimulus and then the buy Honda, Toyota or Kias as a nod to the full employment mandate across the pacific rim - and help on the goods side, but for every nickel of debasement/export gain there is that nagging little issue of oil price.
on Mon, 01/11/2010 - 20:51
#190616
I'm all for lower taxes. The problem with your conclusion is that spending must remain constant. A 100% tax rate won't raise enough money either unless spending is held in check.
on Mon, 01/11/2010 - 20:47
#190610
Isn't it a little disingenuous to blur the line between the Fed's combined holdings of Treasuries and Agency Securities (MBS) http://www.federalreserve.gov/releases/h41/20091231/ and compare that to the calendar year budget deficit?
I am no Fed supporter and would rather they were audited to prove the fraud and theft from the citizenry, recapture those funds for the people, and then dispatch the Federal Reserve into the history of Closed Central Banks of the U.S.A.
But agency MBS, and direct indebtedness of Fannie and Fraudy are one thing, with their implicit backing of the taxpayer, and MBS paper is another.
C'mon ZH, let's keep the quality standards at higher levels...
on Mon, 01/11/2010 - 20:51
#190615
you are missing a key concept, highlighted even by weeniemaster bill gross
read his jan 2010 letter
on Mon, 01/11/2010 - 21:17
#190645
Read this post: http://www.zerohedge.com/article/fed-enabling-foreign-central-banks-swap-out-their-agency-debt-treasuries
on Mon, 01/11/2010 - 20:51
#190617
After the smoke clears, so to speak, a closed circuit America just might be the only way to save America. The dollar is toast so we might as well get started on the road to Independence.
on Mon, 01/11/2010 - 21:12
#190641
Nothing that is being done is about getting aluminum use up or creating jobs or any of that "real economy" shit. What is being done has one purpose: to allow the very rich to get out of this mess as cleanly as possible. 63-1 insider sell/buy ratio at a time when virtually everyone with a brain thinks stock prices are being gunned up by blatant manipulation? What more do you need to know?
Even if we Zimbabwe, the rich will still have most of the chips, more than they had before. It's possible that won't mean much, but I wouldn't bet on it.
on Mon, 01/11/2010 - 21:42
#190673
What's the big deal? Can't Ben just put the printing press into overdrive to cover the debt?
on Mon, 01/11/2010 - 21:43
#190675
I thought we were in danger of being owned by the Chinese, but it looks like we're owned by the fed. I'm not sure which is worse.
on Mon, 01/11/2010 - 22:00
#190690
You don't have to be an economist to realize that perpetual debt machines do not work. But just like perpetual motion machines, politicians will surely try and convince you they do.
http://www.associatedcontent.com/article/2325608/obama_czars_determined_...
on Mon, 01/11/2010 - 22:34
#190725
Won't this make our economy go blind?
on Mon, 01/11/2010 - 23:37
#190783
+1 I lol'd
on Mon, 01/11/2010 - 23:00
#190754
The U.S. Treasury is the last, great manufacturing facility in the U.S....they manufacture debt, and they are the best at what they do.
Selling bonds to ourselves, we are.
on Mon, 01/11/2010 - 23:25
#190774
And to think someone tried to tell me last night that central bankers at least provide some intermediation that prevents deficit spending (as opposed to the U.S. Treasury regaining the money issuance authority). Where is that asshat tonight?
on Mon, 01/11/2010 - 23:53
#190797
Off the subject, I think its time to short the market now... Cramer came out and said its ripe for an "explosion". He particularly likes the automakers....
http://articles.moneycentral.msn.com/Investing/top-stocks/blog.aspx?post=1541957&_blg=1,1541957
on Tue, 01/12/2010 - 00:25
#190816
i am not an economist nor do i play one on tv but if the fed is buying all of the debt why is m3 shrinking? and if the fed is buying 91% of the debt then how does one explain the large % - 30-50% - of indirect purchases of debt?
to the first question the fed buys treasuries from the primary dealers....are they stuffing the proceeds under a matress? even so i would think that it would get counted in m3....is money in the treasury's bank account not counted?
on Tue, 01/12/2010 - 02:55
#190865
I'm not understanding something here---is the claim that the FED bought 92% of US Treasuries? Is the 1.85 Trillion comprised of Treasuries and MBS? The link in the article lists T's sold by the month, but nothing about who bought them. Link here says the FED only has 776 Billion in Treasuries, 300 billion bought last year.
http://www.federalreserve.gov/Releases/H41/Current/
on Tue, 01/12/2010 - 03:04
#190874
I think Tyler is pointing out the correlation of money printing to deficit spending and how the FED has had direct or indirect purchases through various mechanisms. But proving causation on the other hand would require an audit of the FED and the institutions that were given or lent money.
on Tue, 01/12/2010 - 07:48
#190912
We exported our inflation to pay for:
WW2
The Cold War vs the USSR
The Wars Against Chinese expansion (Korea & VietNam)
But now to pay for our Bankers Financial expirements?
What will we do when we need to defend against the Jihad
on Tue, 01/12/2010 - 15:26
#191473
Well actually, for those of you who wish to slander Ronald Reagan, the data does support Reagan, and quite strongly so. What you are failing to take into account are 1) the irresponsibility of the governments in question to act in a sober and adult manner over that 30 or so year period since Reagan's day; 2) the actual tax increase by the same governments since R. Reagan; and 3) Migration out of these regions in question, again due to bad government. You do not appear to be stupid, so I must assume that these are willful deceptions on your part.
It is intellectually dishonest to conflate tax revenue growth do to lower marginal rates with insolvency caused by bad government.
Sounds to me that someone, no doubt a Democrat, has some sort of personal problem with Ronald Reagan. If it must be aired at all here, at least have the decency to be honest about it.
Reagan's position is really quite commonsensical, and supported by the economic growth as well as tax receipt growth of the period in question, adjusting, of course for (mostly Democrat) political perfidy. How could it be otherwise? Certainly higher taxes mean lower growth, unless we are talking about growth in the the Democrat's supports, henchmen, clients and dependents.
Next, no doubt, we shall be hearing some hogwash to the effect that "there was a surplus" under Clinton.
It is the Left using their chief vessel, the Democrat Party, that has put us in this pickle, not the least by fraudulent, back door redistribution schemes like TARP, CRA, the Stimulus and the current FED shenanigans.
In a sense, all this messing around with exotic instruments to fund this thievery was just another tax, just a delayed one. None of this can be laid at the door of Ronald Reagen in particular or Conservatives or libertarians in general (and please do not tell me that GWB was a conservative, he was not, he ws a pragmatic "moderate").
Any attempt to cover this up by gratuitous swipes at R. Reagan is not only dishonest, it is immoral.
It is made all the more immoral by using this dodge to give cover to the real villains in this mess and their real designs and intent: The destruction of America and with it the American middle class, all to be replaced by a socialist state. We are watching a coup in progress. They are almost across the line. It is wholly caused by a left wing political elites--and apolitical opportunists carry their water--with the vilest of designs on us.
It has nothing to do with that great man and great American R. Reagan, and if he were in the WH, a great many people out in the E. Hamptons would be in a federal jail right now.
on Wed, 01/13/2010 - 13:35
#192617
Didn't most of the tax receipts gain come from Social Security tax increase during Reagan.
on Tue, 01/12/2010 - 15:48
#191505
It is bizarre to imagine that we soley export our inflation and feel none ourselves at home. One may merely look at a price index from the 1930's until now to see this. It tracks all the bursts in government programs ever made in that period. Anyone that thinks otherwise is too young to remember the huge burst of inflation during the late sixties and the 1970's, either that or just not paying attention.
This was scarcely a case of "exporting inflation".
It hardly matters what ever changing legerdemain the government accountants use to calculate bogus inflation indicators in order to mask this predicament. Go through your lives and note what things cost you now and then reflect on what they cost you 20,30, 40 years ago. A key indicator would be the price of a new car. in the early 1960's one cost around 3K. Yes salaries were lower too, but then look at taxation (there was little for the average man), benefits, and the fact of life long employment for men (and 8 hour work days), and the fact that women did not work at all.
A radical inflation of costs and "wages", a radical deflation of real value, of the real Quality of Life.
The post war experience of most Americans, particularity the middle classes, has been one of almost constant inflation, constant increase in taxation and a constant assault in their liberty, prosperity and property. The only moments of relative respite where when the Democrat were out of power long enoguh to allow the momentum to slow little.
So it is most profoundly not true to say that we :export our inflation", no matter what they say in euro-tranzi rags like "The Economist" or what bilge Democrat propagandists mutter.
And, of course, when Obama is done, the Dollar will not be a reserve currency. That is just what he and his bunch are up too.
on Tue, 01/12/2010 - 18:02
#191704
You should frame this comment and keep it on your wall for the next 3 (or 7 as it will likely turn out to be) years. People of your intellectual caliber are never held to their words, but since you claim the moral high road, you should make an attempt to keep yourself honest.
The problem with people like you is there is *always* something. If Obama doesn't turn out to be a secret Muslim, then he is a secret Socialist. If he doesn't end up ruining the American middle class then he is just setting the table so his successor can.
Your mind is amok with wild notions of conspiracy when the reality is any given issue is too complicated, too multi-faceted, for you to conceptualize and fit into your simple reality.
on Wed, 01/13/2010 - 03:37
#192097
Hey Anonymous .. you of high and mighty intellect ..
it does not a take brainiac to figure out if somebody
(Obama) is trying to steal liberty through his
policies and his rhetoric. Good luck cheering
for the collective.
on Wed, 01/13/2010 - 21:26
#193247
I don't see a rapid decline in dollar vs. other major currencies because they will buy dollars in order to keep their own currencies appreciating too much and thereby put themselves at a competitive disadvantage. What will they do with the dollars? Buy Treasuries I guess.
I would appreciate comments.
on Thu, 01/14/2010 - 11:31
#193772
United Nations AGENDA 21, agreed to in 1992 by 190 countries, including the USA. Read it and weep.