In 2009, the Federal Reserve Bought 80% of U.S. Debt

January 9th, 2010

Update: CNBC: “I Guess You Can Use the Word Ponzi Scheme”

—End Update—

Am I reading this right!? Someone tell me I’m not reading this right.

Via: Pimco:

Here’s the problem that the U.S. Fed’s “exit” poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total – perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. Of course they purchased more 30-year Agency mortgages than Treasuries, but PIMCO and others sold them those mortgages and bought – you guessed it – Treasuries with the proceeds. The conclusion of this fairytale is that the government got to run up a 1.5 trillion dollar deficit, didn’t have to sell much of it to private investors, and lived happily ever – ever – well, not ever after, but certainly in 2009. Now, however, the Fed tells us that they’re “fed up,” or that they think the economy is strong enough for them to gracefully “exit,” or that they’re confident that private investors are capable of absorbing the balance. Not likely.

Posted in Economy | Top Of Page

5 Responses to “In 2009, the Federal Reserve Bought 80% of U.S. Debt”

  1. anothershamus Says:

    Ouch! 2010 is looking like something that is not looking too good. Something like; some really bad thing that comes out of nowhere, but it really comes out of somewhere that you knew it was coming out of, but didn’t really believe that something so bad could come at all, and here it comes!

  2. Eileen Says:

    How funny!
    I guess there must be a large amount of people who now don’t feel stupid when they signed the petition, “AUDIT THE FEDERAL RESERVE!!!!!!!!!!!!”
    But then again, Bernanke is only gambling with whatever assets financial or otherwise, that the United States has left on its balance sheet.
    No Kevin, you are not reading this wrong.
    Pity you weren’t.
    We in the US have been sent over the rapids, in a barrel over Niagra Falls by our money “managers.”
    There is only so magic to go around to get the US out of this one.
    When will those that are managers in this nation (besides Grayson and Paul) choose to “get it?”
    Hope its not just another round of, “if we only knew now, what we should have known then.”
    Auditing the Fed might be a start.
    With the sick and when our physical bodies aren’t well here our motto is “better out than in.”
    Our sick nation might do as well.
    The Federal Reserve not only needs an audit; it needs a seance. Summon the spirits of the Depression of the 1930’s. Haunt Bernanke by making him go through a “Christmas Carol” experience.
    Obviously, someone has got to do something to shut this boy down along with Geithner.
    These two are uh, in that proverbial barrel along witht the rest of us.
    Where’s Volkner? Dammit!

  3. lagavulin Says:

    The world of finance doesn’t actually make any sense to anybody anymore. In the US, monetary sophistication has so outpaced that of every other country/culture that the US Central Bankers pretty much manipulate however they please, on a global scale, and the rest of the world has pretty much been trained to stop being pro-active and only react to what is happening to them, and try to keep from losing their shirts.

    So anything can happen, it seems.

    My own 2 cents is that right now the doomsayers are all behind the curve — no matter how logical their view may be. On the highest levels I suspect most Western countries are falling into lock-step with the “recovery” theme. Eastern powers, not so much…. I’d suspect 2010 will be more of a “recovery” year than a “sky is falling” year that so many predict. I don’t say it’s going to last…I just no longer believe our impending collapse is going to happen quickly enough to actually turn the tables on the Powers that Be, as so many of us hoped…

  4. anothernut Says:

    @anothershamus: thanks for the perfect lead-in!

  5. Zuma Says:

    @anothernut: added that url to my blogroll (urlroll?) a good while ago. excellent site.

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