The Humble Libertarian

Building a small army to take over the world and... leave everybody alone.

Thursday, March 29, 2012

Demand for U.S. Debt Is Not Limitless

This is critically important. Governments only have 3 methods of raising money 1. taxes 2. debt and 3. printing fiat money. America used to be able to get foreigners to buy our debt but these days sane nations are divesting of Treasuries. In 2011, the Federal Reserve bought a staggering 61% of Treasuries. What does this mean? It means that the US is in 100% pure printing mode, inflation will soar and the US is closer to fulfilling its Banana Boat Republic destiny. Paper money always reverts to its intrinsic value of zero (except for the toilet paper value).
In 2011, the Fed purchased a stunning 61% of Treasury issuance. That can't last. 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 Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many.
Read the rest here
The Wall Street Journal