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:
“The 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
I 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)