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WSJ: Fed Buying 61% of US Debt

The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.

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The WSJ Op Ed in Question: Demand for U.S. Debt Is Not Limitless
By Lawrence Goodman | WSJ.com

The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.

The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.

Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, "If you look at the markets, they're practically falling over themselves to lend money to the federal government." Sadly, that's no longer accurate.

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I hear the fat lady humming a

I hear the fat lady humming a few bars...

SteveMT's picture

New before-election date w/Debt Ceiling increase: Sept.14, 2012!

US Debt Ceiling D-Day: September 14, 2012 [see chart at link.]
Earlier today, outgoing Treasury Secretary and tax challenged part-time pathological liar (see here) Tim Geithner said that any worries of the US debt ceiling are misplaced, and that at best such an event would occur "late in the year" (and to think the August 2011 extended $16.394 trillion debt ceiling was supposed to last well into 2013). Naturally, coming from Geithner, it meant this statement was a flat out lief the second it left his mouth, which is why we decided to do our own analysis of just when the latest and greatest debt ceiling would be breached. The answer is that at the current rate of debt issuance, which incidentally is going to accelerate sharply due to the recent extension of the payroll tax cuts which will require an incremental $100-150 billion total debt to be funded, and extrapolating future issuance solely on historical patterns, the US debt ceiling D-Day will be September 14, 2012.

Solution - United States Treasury Notes

Order the FED to purchase 100% of the United States National Debt. We will then OWE the National Debt to OURSELVES!

Once done, order the debt liquidated and close down the FED.

Order the immediate seizure of all gold and other assets previously used by major banks and ANY institution domestic or international that took money or profited from the feds issuance of notes. Declare it a recovery of theft and fraud of the American people by willing participants. Use such seizure assets to back United States Treasury Notes.

Offer issuance of US Treasury Notes in exchange for Federal Reserve notes in current circulation AFTER FED debt liquidated and closed. The ratio of FRN to USN will have to be determined and it will have to be light enough to prevent massive losses to the citizenry but strong enough to prevent hyperinflation.

Out of nothingness the artificial wealth came with the creation of the FED and back to nothingness it will go with its termination.

We can dream can't we...

The fed printed notes and

The fed printed notes and loaned them to cronies. The cronies bought stuff with them, leaving the citizens holding the printed notes (and electronic equivalent). Meanwhile the cronies moved the stuff around from one shell to another until it can no longer be traced as being the result of the fed loan.

Among the assets bought with the printed loans are most houses owned by the citizens which were purchased with the aid of a mortgage.

Your proposal would leave the citizens with worthless paper and the cronies holding all the valuable stuff. You'd just be accelerating the Fed's burning of the economy by turning it into a bomb. B-b And you'd blow up essentially all the private-industry job- and wealth-creating enterprises in the process, since THEY pretty much financed with some Fed funny-money input at some point.

Additionally the whole scheme was legal at the time. So the fifth amendment takings clause would apply. The people whose assets were seized would have a case to require the government pay for them, starting the whole merry-go-round over again. Homeowners (like GM bondholders in the auto "bailout") would probably not be able to get their case to the supreme court. But the big financial institutions would.

Face it. The purchasing power of the stolen money is distributed and pretty much all gone, beyond recovery. What we're trying to do now is stop them from stealing any MORE.

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.


Would all the US Government debt being bought by the Fed be a good thing if the US Treasury then started issuing the US dollar instead? Would the nations central bank then go bankrupt instead of the nations people?


Hey, when did Bernie Maddoff become head of the Federal Reserve? This is a complete ponzi scheme built on the back of a bubble (arent the all).

NO, it will not end the debt... it will...

NO, it will not end the debt... it will monetize the debt, shifting it onto the backs of the people who are forced to use the FRN, and not allowed under the unconstitutional legal tender laws to use gold and silver coin!

It is a scam of the most magnificent proportions! The wealth is shifted to the rich, and the paper to the poor! According to the proportion of fiat created to monetize this debt, will be the loss in value/wealth of the people who do have neither counterfeiting rights, nor access to the proceeds of the counterfeiters!

It means you and I will get poorer! All savings and assets and pensions in the money of account will devalue!

This will continue until all the pockets the worn by the politically connected recipients of counterfeiting, and all the pockets worn by the rest of society not so connected, change their contents...

... the former filled, the latter turned inside-out!


End the Fed: repudiate that debt!

meekandmild's picture

Let the Fed buy up 100% of the debt

go to a commodity based currency and end the Fed, Debt paid.

This will end in tears unless...

we elect Ron and STOP THE SPENDING!