80% of US debt purchased by the Fed in 2009?!

Discussion in 'Economics' started by DrPepper, Feb 7, 2010.

  1. I realize that this video is four weeks old, but I saw it for the first time today. I previously heard that the Fed had purchased 50% of the US debt last year, but had never heard estimates this high.


    Is anyone aware of a definitive source to confirm this?

    If the Fed really monetized 80% of the debt in 2009 and with our debt getting worse by the moment, I can only imagine fewer countries purchasing our treasuries this year.

    With no plans to cut spending or drastically increase taxes, I do not see how this situation is sustainable for a year or two as the speaker stated.
  2. Lethn


    No one really knows how much of the debt the fed has monetized but banks have been doing this globally for years, any of our real currency has been completely abolished in favour of the fiat system. For all we know they in fact have absolutely no gold or silver in the banks and our currencies are largely worthless. It isn't sustainable at all, you're right, anyone who says otherwise is a liar or they're just fooling themselves. The smart countries that are everywhere are probably looking at dumping the U.S treasuries somehow or they've openly just said no already, I found it hillarious how China basically said piss off to the global warming plan the politicians were pushing.
  3. The Fed purchased EXACTLY $300bn of Treasury securities in 2009, as per the FOMC decision given here: http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm

    Total issuance of Treasury securities in 2009 is estimated at arnd $2097.7bn (to Q409), according to SIFMA: http://www.sifma.org/uploadedFiles/Research/Statistics/SIFMA_USBondMarketIssuance.pdf

    This implies that the Fed purchased arnd 14.3% of the debt issued by the US Treasury in 2009. Not 50%, not 80%, not even an unknown massive amount, which is what you'd hear from the conspiracy nuts.

    I think I am going to start a "Stop the Idiocy!" campaign...
  4. wavel


    Those are interesting statistics, although I suspect that the vast majority of individuals who feel concerned will be at the very least quite sceptical with regards to the accuracy of any data released by an entity that they believe to be lacking transparency, whether that belief is justified or not. So thats the problem here, a lack of trust. So how do we set about correcting that lack of trust?

    Just out of interest MartinG, do you trade the market based upon one single statistic, or do you trade the market having assessed a trend, which ofcourse requires multiple data points?

    Bearing the previous question in mind, do you anticipate that the Fed will continue with purchases during 2010 or perhaps 2011? If so, in your expert opinion what % do you believe will be sufficient in order to "maintain market stability"? Do you believe that purchases could rise to 30% or do you anticipate a tapering off? Perhaps Fed purchases may only need to occur once every 5 or 11 years?

    To anybody who is sceptical, they could suggest that a lot more "damage" could occur over a long period such as 11 years if the intention of the Fed is to cyclically purchase debt every 5 or 11 years for example.

    The fundamental problem here is that neither the Fed nor the "government" have provided the "voting electorate" with a long-term performance benchmark by which the "voting electorate" can use in order to assess the progress that is being achieved, and perhaps due to this lack of transparency in terms of where we are "moving to" merely serves to compound an increasingly sceptical (and increasingly informed/misinformed) "voting consumer". Do you agree with me that a lack of transparency only serves to generate more scepticism, and if so, what steps must be taken to ensure that these concerns are 100% nullified in order to prevent an uprising?

    Do you see any steps that have already been taken by the US government that may suggest that an uprising has already been accounted for and is infact anticipated, legislation etc?
  5. Have those numbers been audited by an independent firm to give them any credibility what so ever? No of course not, the fed will not allow any type of specific audit.
  6. Mav88


    Testicle may have a point, but in the end it is congress and the president that sets the budget and it is with them alone the blame lies for any gov't debt created problems.
  7. Why do you insist on repeating the drivel that you hear in the media?

    Firstly, the Fed reports annually on its activities to the Speaker of the House. Secondly, financial statements of the Federal Reserve Banks are audited annually by an independent external auditor. Thirdly, the Fed can be audited at any time by either the GAO or by the FRB's Office of Inspector General. Specifically, you can look at the statement made by Deloitte, the independent external auditor, on page 3 of the 2008 (2009 is not yet available) Combined Financial Statements of the Federal Reserve Banks that you can find here: http://www.federalreserve.gov/monetarypolicy/files/BSTFRcombinedfinstmt20072008.pdf

    Quite apart from the above, I am one of the participants in both the primary and the secondary mkt for US treasury securities. I participate currently in UST auctions and used to participate in Fed buybacks. The money I and many others like me make or lose depends on my knowledge of, among other things, how much free float of each treasury issue trades in the mkt and how much is held by the NY Fed in the SOMA account. Given that there are hundreds, if not thousands, of people like me, whose livelihood depends on the understanding of where every last million of every UST ISIN sits, do you really think it's possible that the Fed is concealing a few trillion treasuries somewhere?
  8. Lets say that your household (our government) has been on a multi-year spending binge and now does not have enough money (can't sell treasuries) to pay off our overdue credit cards or buy the daily essentials (pay the interest on national debt) then we could go out and get a few more credit cards (feds stroke of a pen) to draw on to try and pay off the ones that are maxed out (buy our own treasuries), sort of a borrow from Peter to satisfy Paul. This can not go on forever. If any of us were in this situation, we would know that we were so, so close to bankruptcy. I believe that when you do this type of thing in a business it is called fraud, usually with federal prison being the result.
  10. wavel


    Hows about practicing responsible lending? What is to stop the Fed from saying, "Yo Mr Pres, I think your overshooting what the taxpayer can afford here, so upon that basis we are unable to provide you with the liquidity you ask of us".

    Clearly the Fed choose not to take this action. Who are the government to question the Fed, if it is only the Fed that can be entrusted with creating liquidity?
    #10     Feb 7, 2010