Dirty little secret no one is talking about...

Discussion in 'Economics' started by Mvic, Jan 10, 2009.

  1. Mvic


    or:Where is the money going to come from?

    CBO projecting $1.2T deficit, $1T stimulus for the next 2 years, Obama saying that we will have years of $1T deficits. So say $5-6T total debt (remember this is US national debt only) needed to be financed just during his 1st term assuming no additional stimulus needed (unlikley) and deficits being held in check at $1T (also unlikely given how badly the states will need help).

    I know everyone just assumes that China is a bottomless money pit that can be tappeed at will, but last I read they only have about $2T in foreign reserves and are spending it on their own projects and on assets other than US debt.

    So my question is, where is the money going to come from to finance this historic issuance. Not to mention all the pent up muni and corporate issuance, nor the debt issuance from other nations.

    The Germans couldn't even raise $6B euros this week at current rates! There is some $3T that is going on the block this year, 3X more than last year, just who is going to buy this stuff! What are they going to want to be paid to hold this asset class?

    Its all very well for the Fed and CBs to keep the cost of money artificially low but as we all know artificially low prices result in shortages and it seems that this is what is starting to happen, a shortage of money willing and available to buy debt.

    I don't see how we can print out way out of this, growing our way out of it doesn't seem like an option that will be available anytime soon, so it seems commonsense to me that the only viable option is for rates to rise and substantially.
  2. There's always a country willing to lend us money. We just set the rates, and the market decides to buy or not. China isn't the only country that buys treasuries you know. I seem to recall there's some countries in europe that might buy our debt with economies 5 times larger than china.
  3. Mvic


    Like Germany?

    These countries have their own looming deficits to finance. The UK is the biggest European holder of our debt with 239B, no one else in Europe comes close to that figure (and size of economy has nothing to do with it, in the whole Eurozone there is only about 0.5T USD in foreign exchange reserves). The biggest holder of US debt is the SS admin and other US gov entities, together they hold about $4.5T of our national debt. Foreign exchange reserves which other countries use to buy our debt amount to about $7T, that is total global foreign reseves in USD and with exports dropping off everywhere and oil having crashed it isn't growing like it was a year ago. In the next 4 years we could easily see issuance of $5-6T by the US gov alone. We face the likely headwind of many US gov agencies and muni's not rolling over debt as they will need the funds. And don't count on the SWFs as they were specifically created to buy asset classes OTHER than US debt!

    So the question remains, where will the money come from?
  4. clacy


    It's mind boggling I agree, but for now countries (and others) are buying our debt.

    It will be interesting to see, how this slowdown affects China. If it gets ugly over there, they won't have the ability to constantly buy our debt.

    Then the question becomes, do other countries take over and step up their purchase of our debt?
  5. Maybe once China loses all their reserves ...then the entire world just decides to do a debt "re-do" and everyone starts at Zero again...hahah

    just kidding...but think about it...its probably the only end result
  6. clacy


    I would not be at all surprised to see that happen in the next 20 years. In fact, I'm not sure there is another option other than hyperinflation and that would not be good for anyone.
  7. schizo


    They, meaning the government, will do what they have always done. Keep printing money to buy enough time to create another bubble. Only this time, it would have to be a bigger bubble than the last.
  8. This post is ironic, because it's exactly what I touched on in my blog themarketchatter.blogspot.com a couple days ago.

    Basically all anybody will have left is an IOU, which is just a piece of paper the way we're going. And it's not just individuals, it's governments and corporations.

    It's going to be fun to sort out who owes what to whom.
  9. You all need to learn how to read:





    Analects of President Elect 1/8/09 speech:

    This crisis did not happen solely by some accident of history or normal turn of the business cycle.

    Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four.

    Happy hoarding. What's good for the financials and governments is good for the populous.

  10. perhaps the only thing keeping our currency up is our strong military
    #10     Jan 10, 2009