Tuesday, November 3, 2009

The Problem with US Bonds

Just a few factoids on who it is that's loaning Uncle Sam all the money Uncle Obama is spending:

* The US Gov't spends three dollars for every two dollars it collects in tax revenues in 2009, and likely at least through 2010.

* "The Q2 Flow of Funds Report published by the Federal Reserve revealed that the Federal Reserve purchased as much as half of the newly issued Treasuries in the second quarter" (What this means is that the Fed printed about $180 billion out of thin air and "loaned it" to Uncle Sam)

* "According to reports, in the red flag category, US treasury holdings of China came down from $800 billion to $797 billion. In August China was a net seller of $3.3 billion" (The Chinese are selling more Bonds than they're buying)

* Foreign nations purchase roughly half of the Bonds we issue. Fellow Americans only purchase about 10%. The rest get "bought" by the Fed.

* This recession (well, depression really) has hit other nations as well, and their governments are doing much the same as ours is.. borrowing like there's no tomorrow, because of they don't, there would'nt be a tomorrow for those elected officials.

* This depression has also hit local governments.. state, county, cities.. in the wallet. They, too, are borrowing money via Muni Bonds, which I'll get to in a later post.

* As the assets on the US balance sheet become increasingly long-dated, courtesy of QE, and locking in record low rates, US liabilities in turn have shortened their duration to a record level. Almost $3 trillion in US debt will have to be rolled by the end of 2010. But wait, that's just the existing debt that has to be rolled over. Then there's the new debt that has to be added to keep things rolling along: Porter Stansberry estimates the US government alone will need to finance $4.5 trillion worth of bonds next year, of which $1.5 trillion will be new debt: http://seekingalpha.com/article/174910-deficits-and-massive-debt-overhangs-do-matter

There is only so much money in the world..

Soon enough, we as a nation are going to be forced to live within our means, because its certainly not going to happen willingly.

A few nations are living this out today.

Here's a sneak peek at whats happening to Ireland & Latvia today, the UK & Japan tomorrow, and the US soon thereafter


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