Posted on 03/20/2016 11:09:19 AM PDT by pilgrim
For years, the US government has been able to finance it's debt at cheap interest rates because there have always been plenty of enthusiastic buyers. As long as the Chinese, the Japanese, and others continue to hold and buy large amounts..
....then the US government would have to entice them and others to take on the debt by promising to pay a higher interest rate on it. In turn, this would require more spending on debt service by Congress.
If this should ever happen, it would require significant cuts to government programs — or tax increases, or both — in order to pay the larger amounts needed to keep paying the federal government's debts. Otherwise, the US government will default on its debts.
So, for some people who are actually paying attention, it is concerning that the Chinese government has been selling off it's US government debt. If this continues, all things being equal, the US Treasury will have to begin offering higher interest rates in its debt.
CNN reported this morning that foreign governments have been dumping US debt as record rates.
And it seems they're doing it for reasons other than spite.
For years, the discussion over a possible debt-dumping scenario has focused on the possibility that the Chinese and others would dump US debt and US dollar holdings as part of a geopolitical scheme to bankrupt and destabilize the US government. As I noted in this article, the scenario is not theoretical, and has happened to a major power in modern history. The British Empire ended not on a battlefield, but on a bank ledger when Eisenhower threatened to use financial warfare of this type against the United Kingdom if the UK did not withdraw from Egypt in 1956.
(Excerpt) Read more at businessinsider.com ...
what does it mean to dump the debt.
It means they are selling it. It has nothing to do with us because they must hold the debt till it is mature. They will collect what ever interest is payable.
China is selling assets to raise the cash for other purposes than just sitting on it
OK, so, I need to ask a question.
The Fed’s QE*.
The Feds were buying ~$85 Billion per month of US Treasury issued Bonds in order to fill the gap/demand and provide liquidity to Treasury to run our government etc...
They bought, at least initially, short term Treasuries.
The Feds created money out of thin air, I get this.
Who paid the Feds back?
Were they ever paid back?
If they weren’t paid back, did they just take the loss?
If they were in fact paid back, what did/is the Fed doing with that money? More QE?
If they were NOT paid back, doesn’t that make US in default?
Foreign governments dump U.S. debt at record rate 03/19/2016
Foreign governments dump U.S. debt at record rate 03/16/2016
What money do we owe? Useless paper dollars digitized for nearly $.001? It is a promise made knowing it would never be paid. As soon as the dollar hits the circular tin can, all bets and debts will be paid. $10 Trillion Zimbawean dollars buys lunch there. When we hit the hyperinflation button, the debt to “ourselves” can be paid off with a decent paycheck from 10 people. There, the debt is satisfied, now what do we do?
It DOESN'T change who the holder of most US debt is. It isn't the Fed, and it isn't foreign governments.
Gosh, what a disaster -- a bunch of people trying to raise money because of recent losses in, oh, say, stock investments, puts, calls -- are selling interest-paying vehicles, driving down the price, making them attractive to people who anticipate no imminent interest rate hikes! It's TEOTWAWKI!!! /s
“To the proverbial “greater fool?””
Maybe, but that question is never answered.
If Chinese are dumping Treasuries they directly purchased from the USGov, then they’re selling them for less.
Therefore the buyers (whoever) are getting a deal and higher yield...right?
Who’s buying it? Somebody must be doing the buying?
The bonds have not been paid back and the US is not in default because the interest is paid. But the rate is so low that it keeps the government interest servicing from going hyperbolic. More CROmnibus deficit funding always has a component to pay interest on current and new debt. It’s unsustainable.
This forces the Fed to keep interest rates low so that the federal government is kept out of default as it borrows more and more including borrowing its short-term debt servicing.
The situation is one from which there appears no escape except for a controlled bankruptcy of the United States, only it can’t be called a bankruptcy because the USA is sovereign and no sovereign state can declare bankruptcy.
The United States is however, insolvent.
The consequence is that more and more of the production and services that are domestic will move out of the country in search of return on investment. This has been going on for so long that it has become the norm. It is a slow but accelerating unwinding and mothballing of the world’s largest economy.
The situation echos what happened in the oil patch prior to the 2014 collapse in oil prices. The domestic refining capacity was dwindling and plants were literally pickled (filled with diesel as preservative) and mothballed.
I was involved in negotiating contracts to disassemble and move refineries to other parts of the globe, why? Because American plants were manufactured to API specs, a quality so high as to give them hundreds of years of operating life. In other words, the best of engineering was placed on the auction block at pennies on the dollar making it possible to install a refinery in under 2 years rather than 5+ years and at a fraction of the cost. The refineries I was involved in negotiating contracts still had price points at $160 million which was about 1/4 the cost of building a new one. At 6% commission, the contract principles would have pocketed about $10 million for only one contract. And there were several mothballed plants that were for sale.
But all that came crashing down when the domestic supply started filling up storage tanks around the country at WTI about 10% to 20% below Brent. Then the crash came as Prince Alwaleed vowed to destroy the US domestic oil production by refusing to cut Saudi production.
And coincidentally the mothballed refineries were taken off the auction block and bid by domestic investors at higher prices.
This is just one example of one contract in one industry. I could write a book including dozens of other examples.
The long and short of this is that international persons and US persons tied to those internationals are in the business of disassembling industries in the United States, for profit and for takeover of markets that have been in the US domain for decades.
Donald Trump has this exact big picture squarely in view.
This is why Donald Trump is precisely the right person at the right time to take over the affairs of the federal government. His instincts and abilities to put capable and knowledgeable people in place to restructure the national debt and for changing federal budget priorities are perfect for turning around the mess.
I do not know how Donald will proceed but he has called for auditing the Federal Reserve, which is a scary thought as every politician or notable person to have called for it, and who was substantial in calling for it (meaning they were not marginal such as Ron Paul), all persons calling for such an audit have quickly resigned, disappeared or been arrested on some murky matter.
In my view, what can be done is to default on the Federal Reserve by calling it to ‘delete’ digitally created debt while continuing to pay and service foreign held debt. My logic is that if the Fed created the digital funds from nothing, then deleting them from its accounts by calling it back from bond traders is a relatively simple matter. But this would leave bond traders without an income stream. They will be royally pissed. So what? Who cares?
Bond traders holding government debt that they bought with extremely low interest loans originating from Federal Reserve computer created funds will have their bonds called back by loan cancelations. They will have no recourse other than to bitch and moan.
The income stream from the government bond debt feeds the political industry inside the booming Beltway region so the idea above would infuriate lobbyists and persons who control politicians. So what?
Whatever is done, there will be new groups of winners and losers created by a Trump led administration. I am sure the winners are going to be domestic producers and industries and losers will be Beltway parasites, bond traders and big banks.
“What elementary school did the author of this piece attend?”
Most recent college graduates don’t know the difference between its and it’s, your and you’re, loose and lose, there, their and they’re, too, to and two, whose and who’s, the list goes on. Education is a joke in this country now. People who think they are highly educated put apostrophes in plurals.
+1
Like hell it does.
Everyone knows Yellen raised rates last Dec. and while last Sept. a 4-week T-bill went for zero %, it's now soared to 0.25%. 3-month jumped more than that and the rise is across the board into 1-year T-bills. Misis.org is crazy; the Fed does monetary policy (regulates the dollar's value) and congress does fiscal policy (tax'n'spending). The U.S. gov't could default if it wanted and it would make a damn bit of difference to the Fed.
But the U.S. won't default. OK, so U.S. gov't interest payments will soar five-fold from the current $230B to $1T and change. (Just in time for the new president.) This could mean spending cuts, tax hikes or both.
Hey, nobody wanted zero interest rates and easy money so this is the alternative.
This is a crock. Business Insider's posted a rant by some Mises clown that quoted a mindless CNN blurb and they all got it wrong. Fact: China's U.S. treasury holdings Jan 2016: $1, 237.9B vs Feb. 2015 $1,223.7B. That's an increase. (data from U.S. Treasury Dept.)
That’ll keep them busy for the next century. We have $27 trillion in debt.
Yeah sure. Surged from 0 pct to 0.25 pct LOL! You’re not fooling anyone here.
Looks like it is decrease.
China, Mainland Jan 2016 1237.9 Dec 2015 1246.1
Not trying to argue. Jan 2016 follows Dec 2015.
It looks like it has been dropping from August 2015.
China, Mainland 1237.9 1246.1 1264.5 1254.8 1258.0 1270.5
Take care.........pilgrim
Sure, who do you think will get paid, and who will hold the worthless paper? That is my point. You can say that most debt is held by residents in the USA, but will we collect? The FedGov will continue to pay out benefits only as long as they can juggle the debt payments. Once servicing the debt becomes impossible, the game is over, and the bonds will go the way of the Confederacy.
No prob., my dispute's w/ CNN anyway. They started this whole thing by saying (from here and here):
Contrast that to the actual numbers from treasury.gov:
|
TREASURY SECURITIES |
||
|
HELD BY CHINA 2015 |
||
|
(in billions of dollars) |
||
| Jan | $1,239.1 | |
| Feb | $1,223.7 | -$15.4 |
| Mar | $1,261.0 | $37.3 |
| Apr | $1,263.4 | $2.4 |
| May | $1,270.3 | $6.9 |
| Jun | $1,271.2 | $0.9 |
| Jul | $1,268.8 | -$2.4 |
| Aug | $1,270.5 | $1.7 |
| Sep | $1,258.0 | -$12.5 |
| Oct | $1,254.8 | -$3.2 |
| Nov | $1,264.5 | $9.7 |
| Dec | $1,246.1 | -$18.4 |
| Jan | $1,237.9 | -$8.2 |
-- and seeing how the level of holdings in 2015 varied less than 2% plus/minus, and that Jan 2016 yr/yr was within a tenth of a %, you can see why imho CNN is simply not reliable.
If they can make it sound bad, get more hits.
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