Is this true? If so, that shows how fucked we are!!!! -------------------------- In the 5 months since QE II has started, the Federal Reserve has purchased more Treasuries than were issued. I'm really surprised that no one is talking about this. Between 11/17/2010 and 4/13/2011, the Federal Reserve has purchased $508.9 Billion in Treasuries (http://www.federalreserve.gov/releases/h41/) and the Treasury has issued $475.7 Billion in debt(http://www.treasurydirect.gov/NP/NPGateway). Keep in mind that QE Light had started before QE II and continues in parallel. I extrapolated these numbers to an annual basis and got $1.264 Trillion for the Federal Reserve Treasury purchase rate and $1.181 Trillion for the US debt rate. The US debt rate seemed lower than what I heard it was, so I looked a little closer. I noticed that, during this same time period, the US Treasury deposits with the Federal Reserve dropped by $190 Billion and the Treasury printed $36 Billion physical dollars (these were also from the H.4.1 referenced above). Adding these two to the debt and extrapolating I get that our annual deficit is running at $1.74 Trillion over that last 5 months. There might be other accounts that affect this number, so if someone else knows, then please post it. What I believe this means, is that there aren't enough buyers in the world that are willing or can afford to buy $1.7 Trillion per year to fund the US deficit. That means that the Fed can't stop printing for any length of time. I expect that will lead to higher and higher inflation and at some point, the collapse of the dollar.
Well, why would you say that there's nobody talking about it? I am pretty sure Bill Gross has been talking about that particular subject a lot recently. Secondly, why would you extrapolate, given that the size of the QE3 program is limited and well defined? So is the govt deficit which tells you precisely how much Treasury is going to issue. Thirdly, physical dollars are not issued by the Treasury, but rather by the Fed. So your calculation is incorrect in a variety of ways. Be that as it may, yes, what you're suggesting is precisely the point that Bill Gross has been mnaking. We'll see how it turns out.
Why else are yields this low and oil above 100. Of course the Fed is buying more treasuries than are issued. The circle jerk between the Treasury and Fed will continue. Yields are probably going to continue to fall from here since the Treasury is temporary not issuing any more debt supply. Inflation on household goods will eventually creep up, home prices and Ipods will continue to decrease. The Dollar will goto hell, along with all other currencies. Life will go on.
Using options I am long TBT for the reasons above ^^^ I dunno when yields will creep higher just seems to me that they can't go much lower...
Handled properly, it's really not that big a deal. All the US really has to do is cut back spending by about a quarter (ie, cut SS and defense), give everyone a massive debt holiday, and pre-emptively default on the bulk of the sovereign debt (SS and China). The danger is if things are allowed to fester for too long, which is a possibility.
The US Military is the biggest user of oil in the world ... if we could finish the wars oil would drop from lack of demand which would be good for everyone except oil producers... Heck if Obama wanted to lower the price of oil he could just announce that he's going to tap into the SPR to ease demand in the US to create stability in the price of oil... that alone would drop the price 10% even if he never took a single drop of oil out of the SPR.
The US Military is not the biggest user in the world among all users. They are the biggest institution in the world in terms of oil consumption which excludes countries. The more the oil price goes up, the more us military has to cough up more money which means for us govt to borrow even more money which means debasing USD which means oil price will go up. We call this gang bang economics where a country is fucked by multiple factors and sides. The US Military operations will stop when oil hits $200/barrel. How can it make sense to fly a F16 getting 1 mpg (or something close) when oil price is $200.