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Who Will Buy Our Debt When the Fed Stops Buying Our Own?

June 8, 2011

The following was excerpted from an article in the Washington times. Just take a minute or so and read it, noticing some of the parts I highlighted. It was especially terrifying to know that 85% of our bond sales, which finance the continuing deficit spending, were bought by OURSELVES!!!! If that is not creating money, what is? Then the article says they are worried who is going to step up and buy this 85% of bonds we want to sell!!! No wonder we have added 50% more to the national debt since the Obama crew took over.

The U.S. Treasury next month will go back to relying on the kindness of strangers like never before to purchase the nation’s burgeoning debts — and taxpayers may have to pay higher interest rates to attract enough foreign investors, analysts say.

Though a significant rise in interest rates could be toxic for a softening U.S. economy, the Federal Reserve has said it will end its program of purchasing $600 billion in U.S. Treasury bonds as planned on June 30. The Fed is estimated to have bought about 85 percent of Treasury’s securities offerings in the past eight months.

That leaves the Treasury, which is slated to sell near-record amounts of new debt of about $1.4 trillion this year, without its main suitor and recent source of support, and forces it back into the vagaries of global markets. Among the countries that will have to step forward to prevent a debilitating rise in interest rates are China, Japan and Saudi Arabia — and even hostile nations such as Iran and Venezuela with petrodollars to invest, according to one analysis.

The central bank launched the unusual bond-buying campaign last fall in an effort to lower interest rates and boost the sagging economy — and it was successful at drawing down long-term interest rates to record lows last winter. In particular, 30-year fixed mortgage rates fell to unprecedented lows near 4 percent and spawned a refinancing wave that helped consumers to discharge debts, purchase homes and increase spending.

But by the start of the year, a pickup in inflation — led by a surge in oil and other commodity prices that some economists blamed on the Fed’s easy money policies — wiped out the boon for consumers and home buyers and started to weigh on the economy. With the economy relapsing back to tepid rates of growth around 2 percent, some Fed officials argue that it should continue the easing program, but fear that the commodity boom could turn into a serious inflation threat makes it difficult for the Fed to do so.

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