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As US Debt To GDP Passes 101%, The Global Debt Ponzi Enters Its Final Stages

Tyler Durden's picture




 

Today, without much fanfare, US debt to GDP hit 101% with the latest issuance of $32 billion in 2 Year Bonds. If the moment when this ratio went from double to triple digits is still fresh in readers minds, is because it is: total debt hit and surpassed the most recently revised Q4 GDP on January 30, or just three weeks ago. Said otherwise, it has taken the US 21 days to add a full percentage point to this most critical of debt sustainability ratios: but fear not, with just under $1 trillion in new debt issuance on deck in the next 9 months, we will be at 110% in no time. Still, this trend made us curious to see who has been buying (and selling) US debt over the past year. The results are somewhat surprising. As the chart below, which highlights some of the biggest and most notable holders of US paper, shows, in the period December 31, 2010 to December 31, 2011, there have been two very distinct shifts: those who are going all in on the ponzi, and those who are gradually shifting away from the greenback, and just as quietly, and without much fanfare of their own, reinvesting their trade surplus in something distinctly other than US paper. The latter two: China and Russia, as we have noted in the past. Yet these are more than offset by... well, we'll let the readers look at the chart below based on TIC data and figure out it.

That the Fed is now actively monetizing US debt is beyond dispute (although some semantic holdouts remain - we are quite happy for them). Alas, with China, which has traditionally been the biggest buyer of US paper, no longer buying Treasurys, we are confident that the Fed will have no choice but to be dragged kicking and screaming once again into the fray, especially since traditional buyers of paper, even when allowing for exponential repo market leveraging (and someone please look at what is going on in the BoNY, State Street sponsored $15 trillion quicksand of repo'ed securities, which is the biggest black hole in the shadow banking system and will be the next pillar of the ponzi system to collapse) will be unable to keep up with US issuance. Especially since Primary Dealers already saw their Treasury holding rise to an all time high in the past week, and are loaded to the gills with US paper. So who is buying? Why Japan and the UK.

Japan and the UK? Hmm, if these two names sound oddly familiar, allow us to refresh one's memory. Behold the pristine leverage condition of both these two countries, in all its glory.

Hint: look at the far left.

So somehow the world's two most indebted countries (recall that Japan is about to in total pass 1 quadrillion debt) are out there and buying up the biggest amount of US debt (after the Fed of course)? Sorry, but while we are amusing by this attempt by the global ponzi regime to keep itself alive (even as Russia and China prudently step aside from the mauling that is sure to follow), whereby the most indebted nations keep buying each other's debt in the most transparent and potentially deadly shell game in history, we are also confident this is unsustainable. Which means the Fed will have no choice but to step in. And since when it comes to the capital markets, the ride up is over since we have now crossed the point where incremental profits are drowned by incremental input costs (thank you $106 WTI), the Fed now has just one mandate: to keep the US fiscal machine well-greased by buying up US debt at zero (and beginning in May negative) rates, through wanton monetization. 2012 may prove to be quite eventful after all.

 

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Tue, 02/21/2012 - 19:54 | 2182731 lunaticfringe
lunaticfringe's picture

I've been hearing about the Ponz's death for years. Yawn. Still waiting for the obituary.

Tue, 02/21/2012 - 20:04 | 2182772 RockyRacoon
RockyRacoon's picture

How 'bout we send some folks to JAIL!

From Ed Steer this morning:

SEC Surrender Continues With Bear Bankers Deal

Once again, the Securities and Exchange Commission has embarrassed itself. Last week it let off the hook two hotshot former Wall Street hedge-fund managers who lost a bundle for the investors trusting them to manage their money responsibly.

Instead of going to court on Feb. 13 and laying bare the sordid facts for a jury, at the last minute the SEC settled a civil suit against Ralph Cioffi and Matthew Tannin of the now defunct Bear Stearns Co. These were the hedge-fund managers who five years ago loaded up their two funds with $1.6 billion dollars of lousy mortgage-backed securities and collateralized debt obligations, leveraged them to the hilt and, when the market for the securities soured in July 2007, liquidated the funds.

The price the SEC extracted from Cioffi and Tannin as part of a settlement -- after previously telling the court it intended to go to trial -- was a mere pittance, “chump change,” according to the federal judge in Brooklyn overseeing the case. Cioffi, who made $22 million in 2005 and 2006 at Bear Stearns, will pay just $800,000 and agree to a three-year ban from the securities industry. Tannin, who was paid $4.4 million in his last two years at Bear, will pay $250,000 and agree to a two-year ban. Neither has to admit to wrongdoing. The agreement will deter absolutely no one from trying to pull off a similar stunt.

Crime definitely pays. This story appeared on the Bloomberg website yesterday morning...and I thank Washington state reader S.A. for sending it along. The link is here.

Tue, 02/21/2012 - 20:03 | 2182773 masterinchancery
masterinchancery's picture

Since the US also owes $7 trillion in Agency paper, currently guaranteed by the Treasury, the real debt to GDP number is more than 140%.  Check out Rogoff and Reinhart's This Time It's Different to see what happens then.

Tue, 02/21/2012 - 20:37 | 2182887 lolmao500
lolmao500's picture

The US has to roll over 27 billion a day just to not be insolvent... the ponzi scheme collapse will be epic when it happens.

Tue, 02/21/2012 - 20:38 | 2182895 slewie the pi-rat
slewie the pi-rat's picture

That the Fed is now actively monetizing US debt is beyond dispute

L0L!!!    "actively", no less!  

perhaps the semantic holdouts would be most happy with more than an assertion

how is this conclusion reached?

maybe the next time, we can see the 'work' b4 the fuking dog eats it

again

Tue, 02/21/2012 - 20:46 | 2182917 BlackholeDivestment
BlackholeDivestment's picture

 

 

                 ...que the Super Computer Algo Nova Troika music 

                     http://www.youtube.com/watch?v=jcAYaaAbYMM 

                                      on the ship of fools

                 http://www.youtube.com/watch?v=Pgum6OT_VH8&ob=av3e

 

Tue, 02/21/2012 - 21:56 | 2182988 sasebo
sasebo's picture

And  the poor banks that bought Greek bonds are only going to get 50 cents or whatever on the dollar? But what did they use to buy those bonds? You guessed it --- money printed out of thin air. 50% of something is a whole lot better than 100% of nothing.

Too bad Greece can't repay them with more money printed out of thin air. Or can they?

Might be a good one for TD. How do you tell real money from the funny money created out of thin air by the fed & the banks? If you can figure out a way can we not accept funny money created out of thin air?

Tue, 02/21/2012 - 21:28 | 2183031 Downtoolong
Downtoolong's picture

Forget the Russians, Chinese, Japanese, and Brits. I’m an American and I’ve been gradually shifting my investments in Treasuries into short term corporate debt. I just want to know how long it will be before this gets me labeled a traitor so I can plan my exit to Norway in advance. 

Tue, 02/21/2012 - 21:47 | 2183078 shutdown
shutdown's picture

 

 

Will the ECB bail out the USA when it reaches 160%?

Wed, 02/22/2012 - 00:05 | 2183349 tim73
tim73's picture

Troika Clones will be required...in every State.

Wed, 02/22/2012 - 00:23 | 2183393 mayhem_korner
mayhem_korner's picture

Will the ECB bail out the USA when it reaches 160%?

 

 

Well, I'd say it's a good bet when they announce they're dropping the "E".

Tue, 02/21/2012 - 23:18 | 2183241 F-ing Fed up
F-ing Fed up's picture

Partys not over....Print more money...c'mon

 

Wed, 02/22/2012 - 00:21 | 2183389 mayhem_korner
mayhem_korner's picture

 

 

The "getting ugly" button is blinking a hair faster.

Wed, 02/22/2012 - 00:57 | 2183483 thorgodofthunder
thorgodofthunder's picture

Dearest friends of anarchy,

It appears that the US.gov now owes real lenders (China) less and fake lenders (The Fed) more. And bond rates have declined.

So tell me what's the problem oter than Obama's plan seems to be working.

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Wed, 02/22/2012 - 09:33 | 2184297 goldenbuddha454
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I think the people in Washington are not freaking out at this number because they figure Japan's been doing fine at 200% debt to gdp for the last 10 years.  The whole house of cards has to come down at some point though and without trillions in cuts here in the U.S. it will surely happen.  Maybe not this year and maybe not next year, but surely within our lifetimes.

Wed, 02/22/2012 - 09:52 | 2184363 laosuwan
laosuwan's picture

japan is the one to go first; its the gov debt that matters. usa and euro have a lot of catch up work to do.

 

its getting nasty in japan, too

 

http://www.youtube.com/watch?v=hzmgyFQNvvU

 

Wed, 02/22/2012 - 10:00 | 2184391 OhMy
OhMy's picture

Zero Hedge wrong as usual. Yaaawn. Japan has had 200% for decades and nothing, their debt cost actually decreased. BoJ controls the short rates which pin down the long ones. It could control the long ones with the same mechanism as the short ones. One has to remember too that interest paid is the private sector's income, so in the worst case it will displace some other govt spending, no big deal. The most important thing is that it is the govt spending that creates the funds that have nowhere to go but into treasuries. (Yep, they are the US reserves that the banking system has no way of getting rid of, except return them to the CB or the Treasury for bonds). Bonds don't finance the spending, they help the CB hit the interest rate target. In sum, big yawn.

http://www.neweconomicperspectives.org/2009/11/what-if-government-just-prints-money.html

Wed, 02/22/2012 - 11:06 | 2184755 daxtonbrown
daxtonbrown's picture

We are in what is really a Biflationary Depression. The central banks have so screwed the pooch that they can now longer even reliably ignite inflation. Instead we get pockets of inflation in commodities and collapsing bubbles like real estate. There is a new book called "Biflationary Depresion" that goes into how the Fed is pushing on a string. https://www.createspace.com/3683488

Wed, 02/22/2012 - 18:41 | 2186729 robertsgt40
robertsgt40's picture

I don't believe the debt is the 101% that is claimed.  I think it's much higher.  On the debt side, we're being lied to.  I understand that about 40% of our GDP is in financial transactions(which is vaporware).  Not to mention all the goods and services that go to the military adventures are also counted(not helping economy).  On the other side our debt is much higher than stated.  I shutter to think what the real ratio is when the smoke clears.  Just me 

Thu, 02/23/2012 - 17:23 | 2190653 salsabob
salsabob's picture

First there is the conflating govt sovereign debt with all other debt - outside of the EU, pretty silly unless you know of those other debtors that owe their debt in the money they issue - but, of course, then they would all be monetarily sovereigns.

Next, US Treasuries can only be bought in dollars.  You have to have the dollars.  Those dollars had to be first spent into the economy.   Of the dollars that Russia or China got, they can keep them, exchange them for Treasuries, or they can buy someone else's debt (or goods or services); then those who sold them that debt (or goods or services) and now have the dollars will have the same three choices as Russia and China. It’s a wash for the US once the dollars are issued.

Finally, the only concern for those dollars being spent is does it add enough to aggregate demand to raise prices significantly (the opposite concern being does it not add enough to aggregate demand to avoid deflation).  The answer likely varies considerable depending on a lot of other things that are going on. One can take a logical and level-headed look at all of that or one can get hysterical and scream about hyperinflation around the next corner.... again, and again, and again..

The latter approach I think may have something more to do with some sort of unpleasant childhood experience.

 

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