I will need a translation. Is the debt referred to here the same as the $40T debt? I dont see how we buy back our own debt. I can see how we reduce debt to other nations by basically telling other countries “you will never get the XXX dollars we owe you so will you take X dollars now?”
“I will need a translation. Is the debt referred to here the same as the $40T debt? I dont see how we buy back our own debt.”
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If we buy back $100 of existing debt for $60 obtained by new debt we’ve reduced our total outstanding debt by $40.
I dont see how we buy back our own debt.
“The Treasury could use its near $1 trillion General Account to help fund its recently announced plans to increase purchases of government bonds, according to two senior Treasury officials.
Using the TGA would provide the Treasury with considerable firepower to influence long-term bond yields. The Treasury surprised markets last week with an announcement that it would be doubling the size of buybacks of off-the-run securities on the long end from $2 billion to at least $4 billion. ...”
They are buying our unsold / unwanted Debt Instruments ( US Treasury bonds, bills , notes)...the Snake is eating it’s tail...we have entered the dreaded Debt Death Spiral.
The author is not clear
I believe he refers to "Eurodollars." There's a whole system of non-US, global banking and finance which is based on US dollars. Through loans, foreigners create US dollar "debt" offshore, outside the USA - although ultimately, transfers of those US dollars must pass through the Federal Reserve
For example, Saudis sell oil in US dollars. Their banks may hold US treasuries, or, they may loan those US dollars to others in the Mideast or South Asia. For example, let's say Saudi Banks finance developers to build a large shopping mall in Pakistan. The Pakistan developer then deposits those dollars in a Pakistani bank to draw-down during construction. The Pakistani bank now has a US dollar asset they need to manage. This offshore system has just created new US assets and liabilities. Economists consider this new "money." The cycle grows and continues.
Ultimately though, this system is controlled by the US Federal Reserve (who handles all dollar transfers and sets short-term interest rates, and US Treasury, who has political control over US economic policy.
If Pakistan does something Bessant doesn't like - well, then in a severe case Pakistani banks can't trade US dollars. What happens then? They are insolvent.
The author is saying a lot of loans interest rates were priced very cheaply. Now people involved in this offshore dollar system must re-fund themselves at higher interest rates. Or if foreign banks (and foreign central banks) were holding US treasury bonds as collateral, bought at 2%, when interest rates are now 5%, those bonds are worth less than before.
The author is pointing out that friendly nations can get temporary loans from US treasury. Unfriendly nations can not.
High finance is hard to understand for normal people.