New record: Federal Reserve owes more than $2 trillion in US debt
The United States Federal Reserve has set a new record, but it’s not one exactly worth celebrating. For the first time ever, the Fed owns more than $2 trillion in US debt.
According to the Fed’s latest weekly account, the central bank currently is holding roughly $2,001,093,000,000 in US Treasury securities.
That statistic, first reported by CNS News, was published by the Fed on August 14. One week earlier, the bank reported that it amount of federal debt it owned totaled only $1,993,375,000,000.
By comparison, the amount of federal debt owned by the bank since the start of 2009 and the administration of US President Barack Obama has more than quadrupled. On Dec. 31, 2008 that statistic was less consisted of less than a half-trillion in Treasury securities, but efforts undertaken by the Fed to revive the economy — so called “quantitative easing” — have instead left the bank to bear record amounts of national debt.
China, the second place holder with regards to US debt, was owed $1.2758 trillion by the US as of late June. CNS News reported that only 16.7 percent of the government’s debt is being held by the Fed, and that an additional $5.6 trillion — including the amount held in China — is owned by foreign entities.
Also this week, the Fed announced the results of a study launched to identify any stresses that could cause another economic collapse like what was seen after the 2008 financial crisis.
"A key lesson from the recent financial crisis is that many financial companies simply failed to adequately identify the potential exposures and risks stemming from their firm-wide activities....," the Fed determined. "But more importantly, many companies failed to consider the full scale and scope of exposures, and to analyze how the size and risk characteristics of their exposures and business activities might evolve as economic and market conditions changed."
Commenting on the latest numbers, Reason’s Ed Krayewski wrote, “Since the financial crisis of 2008, the Federal Reserve has filled its balance sheet with private assets and public debt through instruments like quantitative easing, and the totals are adding up.”
Taking into account all debts, the US is said to be in the hole to the amount of $16.9 trillion. University of California, San Diego economics professor James Hamilton has laid other claims as of late, though, going on record recently to estimate the real debt owed by the US is closer to a staggering $70 trillion.
“The biggest off-balance-sheet liabilities come from recognition of the fiscal stress that will come in the form of an aging population and rising medical expenditures,” Hamilton told Fox News, adding, “It is worth noting that there are many historical episodes in which off-balance sheet liabilities ended up having quite significant on-balance sheet implications.”
Meanwhile, President Obama is reportedly working alongside banking regulators to issue a status report on the upcoming five-year anniversary of the 2008 financial collapse.
"Buyer Of Last Resort": Guess The Mystery Buyer X
As we previously reported, using TIC data, in the month of June the international community did something it has not done in years - it sold US Treasurys with passionate zeal and reckless abandon. In fact, in that one month alone, $57 billion in total Treasury holdings (from $5.657 trillion to $5.601 trillion) was dumped in order to avoid major and accelerating losses. And yet there was one entity that was buying, on a virtually matched dollar-for-dollar basis, all that the foreign entities had to sell. The distribution of June sales among the select largest holders of US paper, and the sole, solitary buyer, is shown on the chart below.
Guess who this Mystery Buyer X, aka the "sore thumb", is who boldly bought everything that no other man, woman or child wanted to buy in the month of June.
China, Japan Sell Most US Paper In Years; Foreign Treasury Holdings At 2013 Lows
And the bid hits just keep on coming.
While previously we reported the foreigners as an aggregate class sold the most gross US securities ever in the month of June, we also learned that in June the biggest selling came from America's two largest creditors: China and Japan (excluding the Fed of course, whose P&L losses are now approaching $300 billion in the past 3 months, or would if the Fed marked to anything but unicorns).
In June, the two countries combined sold $42 billion, with each selling over $20 billion: the most in years.
What is interesting is looking at the composition of the selloff: the bulk of was in the form of short-term Bills, as both countries were actually buyers of coupon securities. Net of coupon purchases Bill sales were even worse, or over $50 billion for the two countries alone.
Which also explains why Bernanke scrambled to make the distinction between tapering and tightening: supposedly without this distinction the pressure on the 3-6 month bucket would have been so large that not even Bernanke's "forward guidance" would be able to offset rising short-term rates, which as everyone knows, would mean game over at a time when the economy is still at stall speed and when the disconnect between real future inflation and Fed-central planning implied growth rates are the biggest ever.
Regardless of the factor, the reality is that America's creditors are saying goodbye just at a time when Bernanke is preparing to taper. The bottom line: Grand total foreign TSY holdings dropped to just over $5.600 trillion, down $57 billion in one month, and the lowest total in 2013.
If that is what the Chairman wanted, he got it.
Source: TIC
Good links, thank you Fred.
ReplyDeleteI guess the Merc's in Syria want to control the Golan Heights so they can receive more weapons from Israel.
Michael Hastings article was good to see, don't want a brave guy like that forgotten.
Good "war watch" updates, no comments needed there. I still have the feeling that something big is up economy wise. Gold, interest rates, bond selling, all time highs and even Bitcoin actions just suggest to me that something is about to get real.
Morning Kev - I think Israel will be uneasy if the Mercs control the Golan Heights - no telling when they might strike out at Israel ( as they are threatening to strike out at Un troops ! ) Assorted grab bag of " what used to be tin " type items - funny how the autopsy seemed to be dying to push the blame onto Hasting , right ? Geopolitical instability through out the Middle East and North Africa , trouble in emerging markets ( currencies / bonds and equities - just look at India and the rupee lately , US bond market jitters and sharply rising yields ( is that what Obama met with the big boys about Monday ) , gold acting like a safe haven..... these signal something is going on beneath the surface , presently hidden from view - but the symptoms are visible !
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