Tuesday, November 23, 2010

Federal Reserve Moves into Top Spot in Holders of U.S. Debt

As the latest round of quantitative easing continues in the background (notice it has already become old news on Wall Street), ZeroHedge tells us in full ponzi glory the U.S. now 'owes' the most money to .... itself.  The left hand (Treasury) now has as its largest customer.... (ding ding) its right hand (the Fed).

By the end of QE2 this chart is going to look very different - that pretty red bar is going to be about 65% higher by next June, dwarfing our Asian friends in slots #2, and #3.  Anyhow who wants our largest holder of debt to be someone who "hates us guys"! [Feb 13, 2009: FT.com - China to U.S. "We Hate You Guys"]  Much better for our top creditor to be a benevolent unelected overlord who can act in seemingly unchecked manner.

  • ... the Fed's official holdings of US Treasury securities now amount to $891.3 billion, which is higher than the second largest holder of US debt: China, which as of September 30 held $884 billion, and Japan, with $864 billion
  • The purists will claim that the TIC data is as of September 30, and that as the weekly custodial account shows UST buying continues the data is likely not correct. They will be wrong: with the Fed now buying about $30 billion per week, or about $120 billion per month, for the foreseeable future and beyond, it would mean that China would need to buy a comparable amount to be in the standing. It won't.

Remember all that hand wringing over the years about "who is going to buy our debt?" - all for naught. When the Fed monetizes your debt Argentinian style - you are on a path to prosperity. (P cubed - paper printing prosperity) We have a buyer with endless pockets happy to monetize Congressional spending under its dual mandate of (a) letting Republicans buy votes via tax cuts and corporate socialism and (b) letting Democrats buy votes via spending programs. Err, I mean (a) full employment and (b) stable prices. (have I mentioned how excellent of a job the Fed is doing on their mandates?) Speaking of which ... now that the election is over, isn't it time to raise that debt ceiling? We have new tax cuts and spending programs to pass!

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