Secret Creditors On Track to Own 10 Percent of U.S. Government Debt

Mark McHugh at Across the Street asks a question that has been the topic of some hushed speculation around here: Who is actually buying all the government's new debt? McHugh makes a game effort to dope out the identities of the "other investors" from Treasury Department's Treasury's 2010 Q1 Bulletin ("incomplete, as I'm sure most of Secretary Tim Geithner's homework assignments were") and the Federal Reserve's Flow of Funds report ("an exercise in convolution"). But he ends up making a plea for some distributed intelligence in tracking down what should be readily available data:

By the end of 2010, Other Investors will own more than 10% of the US public debt (1.5 Trillion or so).  They bought more than 45% of the new debt in Q1.  At what point does this kind of opacity become unacceptable?  Why can't the Treasury fill out its own bulletin with information already available?  Why do we have to wait five months for information that is so vague, you can't even call it information with a straight face?

Full of fine Saxon words like "analality" and "Turbo." Courtesy of Tyler Durden at Zero Hedge, whose own commenters also help build your vocabulary with brilliant coinages like "spendulus" and "Paulie Krugnuts." (Funny bidness like that may make it easier to ignore this important question with implications for the security of the nation and the welfare of the citizens. But it's still pretty funny.)

Comments

[joshua corning]

To quote directly from the Flow of Funds Guide, "For example, the amounts of Treasury securities held by all other sectors, obtained from asset data reported by the companies or institutions themselves, are subtracted from total Treasury securities outstanding, obtained from the Monthly Treasury Statement of Receipts and Outlays of the United States Government and the balance is assigned to the household sector." (Emphasis ours) So to answer the question ? who is the Household Sector? They are a PHANTOM. They don't exist. They merely serve to balance the ledger in the Federal Reserve's Flow of Funds report.

I don't know how but i have the funny feeling that this will fuck us in the end.

[wayne]

One way it could fuck us in the end is if these bonds are being bought by the Fed itself, i.e. monetized. If that is the case, then say hello to inflation at the very least and maybe hyper-inflation.

[hmm]

There's a little speculation, and a few hints that this may be occurring. I think it was last year round lots were being sold, and then oddly repurchases of lots the exact size were being bought a short time later.

[JoshINHB]

One way it could fuck us in the end is if these bonds are being bought by the Fed itself

Isn't that obviously the case.

[fresno dan]

I don't think the Fed is even buying them. More like Homer Simpson leaving a note to himself that he owes himself a donut.

[Irresponsible Hater]

The Alt-Text is pretty clear that it will be in the face, not the end.

[AA]

"The catch with any sugar daddy is that eventually you have to put it in your maouth and suck it."

I thought it was saying that our kids or the next generation is gonna have to be sucking some major governmnet/Federal Reserve cock for all the money they are spending now.

[Franco]

So... are we just being subtle in accusing the Fed of buying bonds on the sly?

[mark mchugh]

Don't know if you'll ever see this Franco, but no, I wasm't trying to accuse the Fed of the purchases. I'll accuse the Fed of helping to mask the identities of the purchasers, which may or may not be the Fed.

I really don't have a working theory, only possibilities. Here's another one: Somebody could be buying in exchange for something, like future US military action against an enemy, or influence, or weapons. Again, that's also pure speculation.

I guess my point is more that we shouldn't have to guess what's going on here.

[David E. Gallaher]

Something funny is going on? I'm shocked.

[SIV]

alt text win for the week

[Paul]

x2

[hmm]

It's Tim. He rocks the alt text. He needs to hold a Reason alt text workshop.

[Tulpa]

There's nothing about it I find tantalizing. On the contrary, I find it obvious and vulgar.

[Jerry]

So they're trying to monetize the debt, except that there are no buyers. What could go wrong...

[Tman]

And lo, did the commentariat at Hit and Run agree that from now on thy opinion columnist nemesis shall be hence forth known as ......

Pauly Krugnuts.

Yea verily was there joy.

[Episiarch]

It feels so right.

[Kant feel Pietzsche]

If loving that is wrong, I don't wanna be right.

[Tulpa]

Hugo Chavez in a cardigan.

[Robert]

What's wrong with "Pay to bearer...."? That's what our money is now, bearer notes. Like we should require anyone in possession of them to disclose that fact?

It'd be one thing if the U.S. gov't got a loan on particular terms from a particular person; that needs to be disclosed publicly! But we're talking about negotiable bonds, aren't we? Is anybody saying these bonds weren't obtained via normal market exchanges?

[Ron L]

Uh, what seems to be the issue here is that the bonds are, as you put it 'pay to bearer', which means the bonds are now currency.
All without leaving the printing presses running! How convenient!

[Draco]

Government bonds are in a very important way equivalent to cash. Objecting to some "other investor" holding the bonds is like objecting to this "other investor" holding the equivalent in cash. (In fact, when the govt sells bonds like this, it is trying to offset inflationary pressure by withdrawing cash from the economy - cash which will reenter later when the bonds are cashed in.)

Just what exactly is anyone worried about here? "OMG! This other investor might wind up owning the USA!" (No, he'll wind up only being able to buy whatever goods and services can be bought with dollars down the line when the bonds are redeemed - at the prices Americans then set.)

Read the link in my first paragraph if you want to get some grounding in monetary reality here, instead of indulging in paranoid speculation.

[JoshINHB]

Chartalist
get thee back to hell.
(Pauly Krugnut's boudoir)

[Tulpa]

I guess that means the Social Security Trust Fund is full of cash, then. In a very important way, at least.

[Ron L]

From the link:
"I put the word borrowing in quotes of course because the government is not really borrowing money when it issues Treasury securities"
So, no, by a careful definition, it isn't "borrowing", it's "inflating", which is sorta borrowing without the middle man.

[hmm]

So after weigelgate and journolist the there's Digg-gate.

http://blogs.alternet.org/oleo.....uncovered/

Not very gatey, and kinda just a group of people being dicks. LoL

[Enyap]

Lonewhacko makes an appearance in the comment section.

[hmm]

Good catch.

[Suki]

Eww.

[Suki]

deliberately trying to ban progressives

Sounds like a feature.

[Torontonian]

I think it's time to rename "Progressives", since "progress" isn't actually what they're seeking.

Since their real objective is to reshape the social order using the power and authority of government, I propose "Social Fascists".

[tkwelge]

Reading the comments on that page was so annoying. Every comment was essentially, "Blargh! Everyone who disagrees with me is some Faux News watching TEA BAGGER who spends their days whacking it to Rush Limbaugh! Bllllarrrrrgh!" Or, "This is another example of the huge conspiracy/evil that we progressives are up against." My personal favorite was the discussion about how the US is the only country that puts up with crazy conservatives, and "our" right wing has ideas unheard of in any other country.

I felt like posting something, but then I figured, why bother? Too bad, because I felt like it would be fun to point out to these people how leftist protesters in Greece have actually killed people, when the worst thing that Tea Partiers have been accused of is yelling nasty things. I love how these people think that all evil in the world stems from people who disagree with them. Oh my god, it was so depressing just to read the comments on that page. I almost feel bad, as if maybe we are doing the same thing on the comment pages of reason, but at least there is something of a debate here.

[Suki]

Reading the comments on that page was so annoying.

You are much too nice.

[AA]

Dude, us commenter's here aren't even close. We have our moments, but its not the same. Plus there is much more humor here.

[PapayaSF]

I thought Digg was already notorious for seemingly coordinated burying of conservative items. Is this just the same thing in the other direction, or something more?

[Fist of Etiquette]

Let's just say we have a fairy godmother with seemingly deep pockets and a penchant for debt, and leave it at that.

[Suki]

WHO CARES WHO BOUGHT DEBT? THE BUYER HAS NO SAY IN THE TERMS, THEY EITHER BUY OR PASS! They can't "call" all they can do is buy and sell and after they own, it makes not difference what happens after that, as long as the debt is paid.

[tarran]

Well, John, I'll explain it to you.

If a person or some company purchases a bond with money from one of their bank accounts, you are quite right, it does not matter (other than the fact that government borrowing crowds out private investment).

But, if it's the Federal Reserve doing it, then every cent paid to the Federal Government is created out of thin air. In effect, it's as if the Federal Government is printing the money it needs to pay its bills.

Now, this scheme of using the printing press to pay for stuff has been tried before.

The U.S. Continental Congress tried it, and it triggered Shay's Rebellion and created such political instability that a few plotters were able to foist the U.S. Constitution on us.

The German govt tried it in the 1920's, and it led to political instability resulting in Hitler taking over.

The Russians tried it as well leading to the the Bolshevik revolution.

Let's see, who else has experimented with this? Mugabe, of course, and we all know how well Zimbabwe is functioning.

So, if that "other" is really the Federal Reserve, then we are well and truly fucked.

[Suki]

rctl, you are really stuck on that John thing aren't you.

[rctl]

Put it in your mouth and suki it.

[rctl]

You are such a low-life for stealing my handle. You are not funny-just a stupid child. I gave you a web site to bitch about me and you are to cowardly to post

[rctl]

too

[rctl]

Suki, I am not stuck on the 'John thing'. I have never spoofed you, or posted any insulting remarks. Anything of such a nature is not from me but from this constant spoofer. I had not posted for months but he still kept it up. I started a blog for the coward but he is afraid to use it. I wonder like everyone else if you are John too but it is just curiosity. I remarked on this enigma on my blog poll but it was just in jest. In fact, you are my favorite female poster.

[Suki]

OK 🙂

[Suki]

rctl, that "Stuck on John thing" was directed at the clinically obsessive tarran when I thought it was spoofing you.

[rctl]

I have one constant spoofer (I don't think It is Tarran) but I never say anything mean-and I hardly post anymore. I write about why on my new blog post. Good luck with this zoo!

[Suki]

The topic is who is buying the 10%, not the drunken sailor spending, which is a frequent topic here and covered well.

Now, pick a handle after you get done picking your nightie and having your pills. KK?

[tarran]

John, I'm not the person posting under multiple handles.

[JoshINHB]

Who's John?

[tarran]

Click on the link to Suki's name, and enjoy the bizarre fantasy of a man, his hot kinky Asian lover, and their hot, kinky romance that climaxes with them destroying Iran.

[JoshINHB]

Sounds like a Bill Kritol wet dream.

[Suki]

You really are weird, spoofing rctl and MNG, who knows who else.

[tarran]

John, sweetie, you are a relatively new H&R poster, so let me explain something to you.

I don't post under multiple handles, and I don't spend my days breathlessly hitting refresh on H&R.

You may be surprised to know that I genuinely don't care about you. I don't think about you. You are nothing to me.

Until, that is you make a thread annoying with your inane postings which are
a) remarkably content free,
b) add nothing to the conversation.

I suppose you expect that people will click through to your blog and eventually buy your book.

I would be very surprised if that is actually happening. I can tell from your posts that you are a fundamentally self-absorbed and uninteresting writer.

Granted, my exposure to the writings of sugarfree has left me with jaded tastes regarding erotic fan fiction. Thus it's possible that you are a passably good writer who can hold someone's attention despite telling an improbable story involving Iran threatening western civilization.

But then wouldn't there be people complimenting you on your fine book? A few reviews on Amazon? The silence is deafening...

[Suki]

You may be surprised to know that I genuinely don't care about you. I don't think about you. You are nothing to me.

Your behavior certainly shows that.

[Suki]

Just asked about traffic since you urged others to click through. Unamazingly, the blog gets more traffic from here with the mention of "Lobster Girl" than when you ask people to go there.

[Suki]

Still with that John thing? You can't argue with my statement so you have to accuse me of being someone else.

Looks like you stopped. Maybe the pill worked.

[tarran]

John,

I've been posting here long before you came up with your fantasy right wing erotic fiction idea, and I'll be posting here long after you've gotten bored and wandered off somewhere else.

[MNG]

+1

[hmm]

I think MNG has a thing for john. A giant, raging, unaddressable, throbbing thing.

[hmm]

lets try unsuppressed.

[Tulpa]

created such political instability that a few plotters were able to foist the U.S. Constitution on us.

tarran's comedy hour has begun.

[tarran]

Tulpa,

I suppose I could be hyperventillating;

After all, it's not like the delegates who secretely came up with the Constitution exceeded their authority they'd been granted with their appointments - oh wait they did!

It's not like they coincidentally ensured that the new govrnmetn would have the taxing power to pay off the war debts that they had purchased at a discount from the original holders.. Oh wait, they did!

It's not like they tried verious parliamentary tricks to ensure opponents had a tought time participatign in the ratifying conventions, oh wait they did!

Of course, we can ignore all the opposition to the Consistuiton by guys like Patrick Henry and Thomas Jefferson, the fact that it was rejected the only time it was put up to popular vote.

We can even ignore the fact that George Washington used the unpopular standing army to invade Pennsylvania.

We can just bask, secure in the knowledge taught to us in government schools, that gosh darn it, we needed a strong central government with the capability to levy ruinous taxes on pretty much anything to save the economy. 😉

[Mr Whipple]

The German govt tried it in the 1920's, and it led to political instability resulting in Hitler taking over hyperinflation.

[Jodi Hunt]

Wow, kinda scary when you think about it. Wow.

Lou
http://www.web-privacy.at.tc

[Mr Whipple]

The question is:

Is the Fed buying them? Perhaps, perhaps not. If I am a TBTF, like JP Morgan, and I can borrow from the Fed at 0-0.25%, I can take that money and buy long term Treasuries at 3-4%. Anybody else want some of that action?

Yes, no, maybe?

Then, I can use the long term Treasuries to pay off the 13(3) loan I'm on the hook for in Maiden Lane I, or just cover all of the other shit that's on my balance sheet that is currently marked-to-myth.

So, I would say yes, the Fed is buying the Treasuries, in a round about way, and trying to cover their tracks.

[Hazel Meade]

Nice.

Wouldn't that mean that any time the federal funds rate falls below the interest rate on treasury bonds that banks can do this?

[Mr Whipple]

Only if the Fed lets them. For the life of me, I can not see a line between the Fed, the Treasury, and private banks anymore. It's like it's all one, big happy family. Why even bother with the formalities? Just print the money and give it to JP Morgan, or whoever, and just stop blowing smoke up my ass.

[James J.B.]

Back in the late 90s. I hit an "analality" while playing mortal kombat - raiden took a monster dump on Kano.

[Hazel Meade]

How much do you want to bet that it's the Fed printing money to buy our own debt?

[hmm]

You know who else liked Sugar Daddies?

[bestpricetosale]

Is the Fed buying them? Perhaps, perhaps not. If I am a TBTF, like JP Morgan, and I can borrow from the Fed at 0-0.25%, I can take that money and buy long term Treasuries at 3-4%. Anybody else want some of that action? http://www.bestpricetosale.com

[R C Dean]

The other speculation out there is that, without these mystery buyers clearing the auctions, the Treasury would have to start offering higher rates.

That would set off inflation and, all by itself, increase the national debt. Right now, an unconscionable amount of our debt is in very low short-term interest notes. Those will roll over soon, and if they roll over at higher rates, voila, fiscal catastrophe.

So the Treasury is very, very strongly incented to clear its auctions at the offered, very low, rates. Thus, the concern that it is clearing the auctions with straw buyers (buying the notes back shortly after), and/or that the Fed has a hand in making sure the auctions clear.

[mark mchugh]

A corrected version of this piece can be found at:

http://acrossthestreetnet.word.....corrected/

I truly apologize for the errors.