US National Debt Will Jump by $617 Billion in 5 Months

Just as the Fed accelerates its QE Unwind. Treasuries reacted.

While everyone is trying to figure out how to twist the new tax cut to their advantage and save some money, the US Treasury Department just announced how much net new debt it will have to sell to the public through the second quarter to keep the government afloat: $617 billion.

That’s what the Treasury Department estimates will be the total amount added to publicly traded Treasury securities — or “net privately-held marketable borrowing” — through the end of the second quarter. This will be the net increase in the US debt through the end of Q2. By quarter:

  • During Q1, the Treasury expects to increase US public debt by $441 billion. It includes estimates for “lower net cash flows.”
  • During Q2 – peak tax seasons when revenues pour into the Treasury – it expects to increase US public debt by $176 billion.

It also “assumes” that with these increases in the debt, it will have a cash balance at the end of June of $360 billion.

So over the next five months, if all goes according to plan, the US gross national debt of $20.5 trillion (which includes $14.8 trillion in publicly traded Treasury securities and $5.7 trillion in internally held debt) will surge to about $21.1 trillion.

That’s a 3% jump in just five months. Note the technical jargon-laced description for this (marked in green on the chart):

The flat lines in 2013, 2015, and 2017 are a result of the prior three debt-ceiling fights. Each was followed by an enormous spike when the debt ceiling was lifted or suspended, and when the “extraordinary measures” with which the Treasury keeps the government afloat were reversed. And note the current debt ceiling, the flat line that started in mid-December.

In November, Fitch Ratings said optimistically that, “under a realistic scenario of tax cuts and macro conditions,” the US gross national debt would balloon to 120% of GDP by 2027. The way things are going right now, we won’t have to wait that long.

Back in 2012, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. At the end of 2017, gross national debt was 106% of GDP!

Over the next six month, the debt will grow by about 3%. Unless a miracle happens very quickly, the debt will likely grow faster over the next five years due to the tax cuts than over the past five years. But over the past five years, the gross national debt already surged nearly 25%, or by $4.1 trillion.

So that’s a lot of borrowing, for an economy that is growing at a decent clip. What will happen when the full force of the tax cut hits US government receipts, or when the next recession appears out of the blue and outlays jump as receipts fall? What will happen to the government’s borrowing needs?

The bond market is barely starting to do the math.

This comes at the precise time when the Fed is unwinding its QE. It’s reducing its pile of Treasury Securities by up to $36 billion during Q1 and by up to $54 billion in Q2. In addition, it will also allow MBS to roll off its balance sheet.

Is the Treasury market already figuring out the answer, given this surge in supply? Will some frazzled folks start buying gold and  unload Treasuries? The answer is that new investors need to be lured into the market with higher yields. Which means lower prices. And this will hurt existing investors.

So the Treasury sell-off continues. The 10-year Treasury yield rose today to 2.73%, the highest since April 22, 2014. And the average 30-year fixed-rate mortgage – which follows the benchmark 10-year Treasury yield – was quoted today with a rate for top-tier borrowers of 4.35%, also the highest since 2014.

But folks that were worried about an “inverted yield curve” can relax. It isn’t going to happen. Instead, they might want to worry about the housing market. Read…  Um, Is the US Treasury “Yield Curve” Steepening or Flattening? 
 

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  74 comments for “US National Debt Will Jump by $617 Billion in 5 Months

  1. Jan 30, 2018 at 9:58 pm

    So far it hasn’t mattered at all.

    What a great country we are. If we try hard enough, we can accumulate as much debt as Japan has accumulated.

    I am so proud of our ability to generate and carry debt, a sure sign of our strength and our productivity, too.

    • Nick Kelly
      Jan 30, 2018 at 10:08 pm

      Sarc?

      • will
        Jan 30, 2018 at 11:37 pm

        Obviously, it is.

        I also hope that we can try hard enough to be Japan too…

    • Rates
      Jan 30, 2018 at 11:39 pm

      I call it the Free Country Premium.

      Manifest Destiny is really about turning every single thing to Debt so that our Commander in Chief can practice “The Art of the Deal”

    • Curt A Tyner
      Feb 1, 2018 at 2:41 am

      Ok folks as fast as you can get out of as much debt as you can and buy some physical gold and silver. It will help you hold your wealth and off set the pain that is headed our way when the bond market blows-up and stocks fall off a cliff. Ever wonder why very wealthy people have physical gold and silver stored in and out of our country? Hedge, hedge, hedge and stay very nimble the Titantic has sunk it just doesn’t know it yet.

    • James Longstreet
      Feb 4, 2018 at 7:04 am

      Funny how Wall Street was broke, then bailed out in 2009 by the government, that is now BIG BROKE….as Wall Street leaps 44% in a year.
      Switcheroo……..
      What would a corporate bailout of the Federal Govt look like? I dont think a corporate tax cut …
      If the revenues do not show up from this tax “reform” bill, the federal debt will be at $25 Trillion in a couple of years….and all this while the Fed is attempting (they will be forced to stop) trimming its balance sheet (money from thin air)

  2. R cohn
    Jan 30, 2018 at 10:04 pm

    A bond disaster waiting to happen

    • RD Blakeslee
      Jan 31, 2018 at 6:55 am

      The “disaster” will be one form or another of abrogation of the debt, affecting entities with accumulated wealth. Some will be what we used to call “the middle class”, in the form of shrinkage in their IRA accounts, etc.

      A great deal of it will be to those called “wealthy”, or”the elite”.

      In any event it will be “wealth destruction”, instead of the liberal’s hoped for “income redistribution”.

      Ironically, the effect could be to forestall a violent revolution by the “have nots” vs. the haves”.

    • Smingles
      Jan 31, 2018 at 2:42 pm

      It’s not that simple, and it could even be 100% wrong.

      Every previous QE actually saw rates move higher, not lower, and tapering/tightening subsequently saw rates go lower. If you don’t believe me, go look at when QEs 1 -3 were announced, what happened to yields (they rose), and then what happened when QE ended (they fell).

      “Is the Treasury market already figuring out the answer, given this surge in supply? Will some frazzled folks start buying gold and unload Treasuries? The answer is that new investors need to be lured into the market with higher yields. Which means lower prices. And this will hurt existing investors.”

      Maybe, maybe not. As it was explained to me, it’s in the name… quantitative TIGHTENING = lower growth and lower inflation = lower yields.

      —–

      By the way, for those who like a good conspiracy theory… the Fed balance sheet roll-off “began” a few months ago, but due to poor timing estimates for the MBS part of the portfolio, the Fed balance sheet is only down about $18 billion instead of the scheduled $50 billion ($10b in October, $10b in November, $10b in December, $20b in January). So in actuality, it hasn’t really run off much (it’s still above Oct 2014 levels, which was the end of QE) although that will start in earnest this month… conveniently, someone important at the Fed leaves their job just as the balance sheet run-off REALLY starts… but gets to claim that it had been running smoothly for months under her watch.

      • Art
        Jan 31, 2018 at 5:39 pm

        I recently read–and don’t remember where–that since the roll off began, the Fed has stopped remitting interest to the treasury. Is it possible that accumulating interest payments is affecting the balance sheet?

        • d
          Jan 31, 2018 at 6:24 pm

          “I recently read–and don’t remember where–that since the roll off began, the Fed has stopped remitting interest to the treasury.”

          The FED pays a segment of its annual “Profit” to the Treasury. Every Year.

          In theory, the Treasury, is supposed to pay the FED. Interest on the bonds, the FED hold’s.

          In reality this is a paperwork transaction against the profit the FED pays to Treasury.

        • Jan 31, 2018 at 7:38 pm

          The Fed remits most of it profits to the Treasury ($80 billion in 2017). But this will decline sharply in 2018 for two reasons:

          1. It will pay more interest to the banks on excess reserves due to the higher rates, which will leave less profits to remit to the Treasury.

          2. It will have a declining balance of interest-producing assets, so it interest income will fall.

          Just as a rough guess, I’d say that it might remit about $40 billion in 2018, down by half from 2017.

          The Fed only remits its profits to the Treasury. This does not otherwise impact the balance sheet.

  3. Tony of CA
    Jan 30, 2018 at 10:43 pm

    The bond market is no longer functioning. The CBs have short circuited price discovery; hence, we are no longer operating under a capitalistic system.

  4. KiwiinCanada
    Jan 30, 2018 at 11:00 pm

    I am not sure that much more will be required in interest rate increases to remove exuberance. The increased interest costs for the US Govt alone are going to be difficult to absorb. A modest amount of increased volatility in the more crowded trades will dampen the wealth effects. This tightening cycle might be over or plateau quite soon. I hate to predict but around 3 % on the long bonds and maybe 50 bp more at the short end. I’m not sure where that leaves us with respect to ammo for the next serious downturn. However if you do have a mountain of debt perhaps all that is needed is to move rates a 100 bp in either direction to have an effect.

  5. terex
    Jan 30, 2018 at 11:08 pm

    Actually, in this uncontrolled spiral of things markets need new debt. A lot of it. The tax code lowers tax take and lowers incentives for companies to borrow and carry heavy loads of debt. In a world that is totally hooked on new liquidity to support absurd valuations of low/non productive assets money – and credit growth – need to stay above at least 5% YoY. Enter government. Thank you!

  6. Night-Train
    Jan 30, 2018 at 11:48 pm

    I know that all is good and just getting better and better every day. I also know that the recent tax cuts are going to blow the roof off of business startups, employment and unicorns for all. But, what happens if another event in the 2008 range occurs instead?

    • Rates
      Jan 30, 2018 at 11:51 pm

      Janet Yellen has said that we will not see another crisis in our lifetime. And as I said, the Commander in Chief is an expert in The Art of The Deal.

    • Frederick
      Jan 31, 2018 at 12:32 am

      That’s where owning precious metals comes in Mr Night-Train

  7. Frederick
    Jan 31, 2018 at 12:30 am

    Frazzled folks buy gold Uuh No intelligent folks yes

  8. Memento mori
    Jan 31, 2018 at 12:47 am

    Given the experience of Japan with their debt and the time since they started down the printing road, one can come to the reasonable conclusion with confidence that debt problems for the US are to be dealt with in a very long time in the future if ever, that being anything beyond 30 years or more.
    US government will never run out of money, we on the other hand will be paying the price through the most insidious of taxes that is inflation.
    Those are unprecedented times. Never in history have we had a period where fiat money was not linked to some commodity the government could not tamper with.
    Real estate has more than doubled in less than 10 years, rents have followed and now services and small businesses will start to incerease prices to pay for the increase in rent. Same as always.
    The question is how to protect your savings from such manifest theft.

    • Mr Knoss
      Jan 31, 2018 at 7:34 am

      “The Art of the Steal”

    • BTilles
      Jan 31, 2018 at 7:54 am

      Re “Never in history have we had a period where fiat money was not linked to some commodity the government could not tamper with.”

      I believe the US dollar since August 1971 has been a fiat currency by your criteria with the Nixon administration severing the dollar’s long relationship with gold.

    • Hiruste
      Jan 31, 2018 at 8:20 am

      Never in history? How to protect ourselves? Look up Wiemer Germany. This time around, the Fed is the buyer of last resort. More debt? The Fed will just buy it and issue more currency.

      There are other viable solutions to save our currency, but it would be easy (if not politically impossible) to implement a currency control board that froze M3 at current levels and only allowed it to grow at the rate of population growth. The goal of the currency control board being that currency would not shrink or grow, but remain constant.

      • economicminor
        Jan 31, 2018 at 10:38 am

        In the time of Wiemar the art of personal debt and extreme mortgage debt had not been perfected. Today a move like that would bring the entire house of cards down. You can only stretch a rubber band so far or blow up a balloon so big before they break.

        Any significant amount of price inflation from this point will collapse the house of cards.

      • Bobber
        Jan 31, 2018 at 10:58 am

        If Fed does QE4 then it’s clear we are going the Wiemer route.

      • Jan 31, 2018 at 12:05 pm

        “Weimar” (not Wiemer) Republic, nick-named after a city in Germany where the first constitutional assembly of that era (1919 and 1933) took place.

        • Anon1970
          Jan 31, 2018 at 12:50 pm

          Recommended reading: “The Rise and Fall of the Third Reich” pages 59-62 (A House Divided).

          In many respects, the US has been on a long decline ever since the Viet Nam buildup in 1965. Of course, there have been many winners and losers along the way. In 1965, Lloyd Blankfein lived in public housing in Brooklyn, NY where his father was a postal clerk and he attended the local elementary school. Today he is the Chairman of Goldman Sachs.

        • d
          Jan 31, 2018 at 4:15 pm

          “Recommended reading: “The Rise and Fall of the Third Reich” pages 59-62 (A House Divided).”

          Most modern Americans will look at the size of that (Particularly in Hardback) and run.

          After I read that I read https://en.wikipedia.org/wiki/Bury_My_Heart_at_Wounded_Knee for a topical change.

  9. Jas
    Jan 31, 2018 at 4:17 am

    Weak dollar, surging inflation, stagnated wages since 1967. Hopefully the pin will meet the bubble in the real estate industry first and there will be return to “normalcy”. US government is esentially being run by Goldman and JP Morgan and a few Russians.
    What’s to worry about?

  10. Tore Johansson
    Jan 31, 2018 at 7:44 am

    Can anybody tell how accurate the numbers given in the US debt Clock. Org is?

    • Jan 31, 2018 at 9:23 am

      The Debt Clock is based on an algorithm that projects some kind of figure that changes by the second. It’s kind of fun to look at, but not real. Once every now and then, including last year, the Debt Clock makes a HUGE adjustment to bring it back in line with reality, which triggers all kinds of conspiracy theories.

      In reality, this is not how US government debt works. US government debt is issued at bond sales and is redeemed when these bonds mature. These sales and redemptions happen at scheduled intervals and are well known in advance. All these dates and amounts can be looked up. The data I cited is actual US Treasury debt outstanding.

      You can look them up here, on the Treasury Department’s website:

      https://www.treasurydirect.gov/NP/debt/current

      • d
        Jan 31, 2018 at 4:02 pm

        “In reality, this is not how US government debt works. US government debt is issued at bond sales and is redeemed when these bonds mature. ”

        You Possibly have 2 sorts of debt rolled into 1 here.

        Treasury Debt is as you say.

        Then there is the rolling 30 – 60 – 90 day, and other terms. US govt Debt, to suppliers and service contractors. Globally.

        This is a large. Almost under the rug. Number. It would not surprise me if this Number was T’S. Considering what the US govt pays out just to support P 45 and his brood, annually.

        • Jan 31, 2018 at 7:30 pm

          Totally agree with your point #2. We used to be a supplier to the government, and for big orders we had to get special financing because it could take for-seemingly-ever before we got paid.

        • d
          Feb 1, 2018 at 3:58 am

          Got that T Shirt as well.

  11. Jan 31, 2018 at 8:16 am

    All those Spikes right after the Debt Ceiling Battles is the U.S. Government paying back the money they Borrowed from the U.S, Government Employees Pension Funds . They Borrow from the Pension funds to keep the Government running until they raise the debt ceiling and they pay it back once the ceiling is lifted .
    If only they could find a way to cap the Budget than those tax cuts would help because they would create more tax revenue as Business improves . This is what happened during the Reagan years . Just as in the REAGAN YEAR we still have a spending problem which will negate the increasing Revenues that a Tax Cut will Create !

    • Hirsute
      Jan 31, 2018 at 8:35 am

      The spending problem can never be solved internally. Congress critters are always running for re-election promising federal spending in his/her district. Then there is the “third rail of American politics” – social security. America, by and large, has lost all sense of financial restraint.

      The message to those Americans with financial restraint is that we are fools. Because of the rampant debasement of the currency, every dollar that is held in “savings” today is worth less tomorrow. The only way that federal spending will ever be crimped is through some exogenous event like a buyer’s strike on Treasury purchases from some large foreign players or loss of reserve status of the dollar. In that scenario, one wonders if Baltimore is the future for the rest of America.

      • economicminor
        Jan 31, 2018 at 10:48 am

        Even if every dollar held in savings will be worth less tomorrow there is NO where to put your savings that isn’t at risk. Buy real estate and pay property taxes and maintenance and risk another 2008>9. Buy stocks and risk the sell off. Buy gold and you have to store it, protect it and there are always costs in converting it back to the local currency. And the volatility in cryptos is beyond amazing.

        So if there is no future, we might as well Party Hardy until the end.

        • lenert
          Jan 31, 2018 at 10:57 am

          Do what Apple and Microsoft do – put your extra savings in t-bills – you’ll get it back 100%.

      • Ensign Nemo
        Feb 1, 2018 at 10:20 am

        There is a sort of ongoing stealth devaluation of Social Security benefits by deliberately understating the rate of inflation for the Cost-of-Living Adjustments (COLAs).

        Here are the COLAs since 2005:

        Year COLA

        2005 4.1
        2006 3.3
        2007 2.3
        2008 5.8
        2009 0.0
        2010 0.0
        2011 3.6
        2012 1.7
        2013 1.5
        2014 1.7
        2015 0.0
        2016 0.3
        2017 2.0

        Does anyone really think that the rate of inflation was *zero* for 2009, 2010, and 2015? Or no more than 2% each and every year, for the past six years?

        https://www.ssa.gov/oact/cola/colaseries.html

        This is a very low-publicity method of defaulting on the promises-to-pay that are part of the “social contract” that workers can pay taxes now and collect benefits later.

        The value of the money paid in FICA taxes today will be lost to inflation by the time that the workers retire.

        • Smingles
          Feb 1, 2018 at 1:29 pm

          “Does anyone really think that the rate of inflation was *zero* for 2009, 2010, and 2015?”

          It wasn’t.

          CPI-W from 2008 Q3 to 2010 Q3 was actually flat to slightly negative.

          2008 Q3: 215
          2009 Q3: 211
          2010 Q3: 214

          So there was actually deflation there, but COLA can’t go negative. That’s how you get 0. And I don’t disagree with those numbers at all. You had widespread layoffs, oil plummeting from $150/barrel to under $40/barrel, housing crash, stock market crash, etc.

          Q3 2014: 234
          Q3 2015: 233

          That’s how you get 0 for 2015.

          Oil went from $100/barrel to $30/barrel from 2014 – 2016. That weighs heavily on inflation.

  12. Anon1970
    Jan 31, 2018 at 9:08 am

    The graph shows current national Debt of about $20.5 trillion. Where does the $24.5 trillion figure come from?

    • Jan 31, 2018 at 9:14 am

      Stupid typo. Fixed. Thanks.

  13. IdahoPotato
    Jan 31, 2018 at 9:23 am

    Where are all the Glibertarian deficit hawks who were screaming for the past eight years? They are just tired of all the winning, I suppose.

    • lenert
      Jan 31, 2018 at 10:54 am

      Now that they have their tax cuts, they are back for your measly healthcare and retirement.

      • Anon2017
        Jan 31, 2018 at 12:56 pm

        If you have managed to accumulate decent retirement savings, expect your Medicare premiums to be subjected to premium surcharges and your Social Security monthly benefit to be cut accordingly. The big hit will come, with a lag, after the Rquired Minimum Distribution hits you at age 70-1/2.

        • d
          Jan 31, 2018 at 4:17 pm

          “If you have managed to accumulate decent retirement savings,”

          Dont have them where they can be seen and you will not experience the issues alluded to.

  14. NY Geezer
    Jan 31, 2018 at 9:23 am

    Federal spending and debt is far more complicated than just raising the debt limit and issuing debt to pay for authorized spending.

    I found a recent article informing that “$21 trillion of unauthorized spending by the US departments of Defense and Housing and Urban Development from 1998 to 2015 was discovered by Michigan State economics professor Mark Skidmore and his team.

    https://www.rt.com/usa/413411-trillions-dollars-missing-research/

    This raises the following question. The US gross national debt stands at $24.5 trillion currently. Since the $21 trillion in unauthorized spending does not include the period from the beginning of January 2016 to the end of January 2018, the unauthorized spending is probably now $21 trillion plus(?). But even assuming the unauthorized spending is “only”
    $21 trillion. is it included in the US gross national debt? If so, is the total debt attributable to legitimate authorized spending a mere $3.5 trillion?

    Wolf, do you have any ideas about this?

    • Jan 31, 2018 at 9:45 am

      Couple of things:

      1. The “24.5 trillion” was a stupid typo on my part. It’s “20.5 trillion,” as the chart and the math shows. (Typo is now fixed).

      2. Whatever amount of money any entity in the government spends needs to be obtained in one of two ways: via revenues or borrowed. If it’s borrowed, it becomes part of the US debt.

      There are accounting issues, with funds getting spent but not getting properly accounted for (the DOD is big on this), and there’s the problem that the “budget” deficit never matches the actual deficit that needs to be borrowed. Hence, total net debt increases nearly always exceed the published deficits.

      But the debt figures — the increases in the debt — are the only reliable measure of how large the actual budget deficits really are. The government cannot fudge the debt figure because investors and other entities hold this debt as an asset.

      • Kent
        Jan 31, 2018 at 11:43 am

        I believe that all federal spending is done through the Treasury. In other words, the DOD doesn’t have a separate accounts payable department. If that is the case, all spending would have to offset by taxes and borrowing. If it is not the case, then it might be possible, based on accounting controls, for the government to just spend money without offsetting revenues. But you would assume it would get caught by the Fed upon redemption.

        • Jan 31, 2018 at 11:59 am

          I didn’t phrase this as precisely as I should have.

          My point is that any actual money that gets spent ALWAYS shows up as a change in the debt, though it MAY NOT always show up in the budgets of the departments or the federal government overall, or in the departmental accountings.

          For example, the government auditor says every year that the DOD’s books cannot be audited because they’re too inaccurate and messy with too many things missing.

          There have been studies that show that large amounts of USG money that have been spent were not accounted for. So the official budget figures and deficit figures are unreliable, while the debt amounts are real and reliable. That was my point.

        • Jan 31, 2018 at 12:39 pm

          I believe you are wrong about that, considering probably half of DOD spending is hidden, and probably the half that isn’t budgeted. If you want to fund an illegal war, an illegal payment of any kind, you go through the basement of ME. (Need a pallet of money to send to Baghdad, just call Ben) The Fed is the banker of the political class and various Deep State cronies. In the case of China we sterilize BIS payments through UST. Cash also works if you place controls on the amount. So if you give despot A a billion US dollars he can only spend it trading with despot B, C and D, and it takes a long time to work for that dollar to find its way back home. And while Bitcoin seems to be a threat to monetary controls, you see it really isn’t, hence Yellen can dismiss the problem with a wink and nod. She probably uses it herself to pay off various Taliban leaders, though not personally.

    • lenert
      Jan 31, 2018 at 11:35 am

      Putin wants us all riled up over the debt so we’ll cut spending on the military (esp. NATO), counter-intel, and regime change. Hah – congress fooled him!

      Yeah, sometimes money gets spent without authorization so we have the Antidifiency Act (from Wiki) :

      “the earliest version of [which was passed] in 1870, after the Civil War, to end the executive branch’s long history of creating coercive deficiencies. Many agencies, particularly the military, would intentionally run out of money, obligating Congress to provide additional funds to avoid breaching contracts. Some went as far as to spend their entire budget in the first few months of the fiscal year, funding the rest of the year after the fact with additional appropriations from Congress.

      [The Act] implements the provisions of Article One of the United States Constitution, Section 9, Clause 7 (the “power of the purse”), which provides that “No money shall be drawn from the treasury, but in consequence of appropriations made by law.”

      The Government Accountability Office, inspectors general, and individual agencies investigate potential violations of the Antideficiency Act every year. The act has ramifications for agencies and individual employees alike.

      Although the AdA and its predecessors are over 120 years old, no one has ever been convicted or indicted for its violation. However, agreements have been changed and reported due to AdA violations,and punitive administrative actions are routinely taken against government employees.

      The AdA is cited as the reason for a government shutdown when Congress misses a deadline for passing an interim or full-year appropriations bill.”

      You have to read a little closer to see how much of our debt is war-debt – I think it goes back past 1812 to The Whisky Rebellion.

      • NY Geezer
        Jan 31, 2018 at 12:11 pm

        lenert, I think Putin probably wants us to indefinitely continue spending our money and the lives of our young people fighting “terror” in the hope that our empire collapses.

      • Nick
        Jan 31, 2018 at 1:40 pm

        I would bet a lot of money that Putin, and other Russians, understand that the USSR collapsed at the same time that it was spending a very large amount of money on its military.

        • Anon1970
          Jan 31, 2018 at 2:51 pm

          Especially in Afghanistan. We took over in 2001 and we’re still there.

      • mean chicken
        Jan 31, 2018 at 2:48 pm

        Exactly, what makes people believe the military industrial complex isn’t simply a mechanism for transferring taxpayer wealth into the pockets of special interest groups? This lucrative cash cow will continue until citizens demand otherwise, not embrace it or by saying/doing nothing.

  15. Nick
    Jan 31, 2018 at 9:50 am

    American capitalism………the power of government to print their own “capital” at the behest of a private banking cartel in order to misdirect it into finite resources. What could possibly go wrong?

    If ANYONE at this point doesn’t believe that our monetary system was designed and functions to enslave Americans in order to enrich a few wealthy banking families you’re an idiot sorry. The Federal Reserve and our entire monetary system needs a reset…….but it will never happen short of a massive societal breakdown or a violent revolution. As long as the proles have their TV, alcohol, and sports and the upper class has their Hawaiian vacations………everyone is fat, happy, and oblivious….nothing will change. As much as I love my kids I regret bringing into this screwed up country. I’m not proud to be an American anymore. Our government is so utterly corrupt. Cities all across America are not only in debt up to their eyeballs, they are violent cesspools of filth, ignorance, and poverty. And BOTH parties in Congress are responsible. But the real culprit is the American people, specifically the older boomers who’s watch most of this crap has happened on.

    • Tom T
      Feb 1, 2018 at 12:36 am

      Yes Nick, for what it is worth, I completely agree with you.

  16. pigeon
    Jan 31, 2018 at 10:12 am

    Hi Wolf,

    thanks for this excellent blog!

    It seems that so far no reduction in the SOMA holdings has occurred in January. Does that mean something?

    https://www.newyorkfed.org/markets/soma/sysopen_accholdings.html

    • Jan 31, 2018 at 12:19 pm

      There are only two things that the QE unwind impacts: the Fed’s Treasury holdings and its MBS holdings. Both are on track for a solid decline in January.

      The Fed can only roll off Treasuries when they mature. Maturity dates are usually mid-month and end of the month. Abut $27 billion in Treasuries on the Fed’s balance sheet are maturing today (Jan 31). This will be the final act for January. So I want to wait with my update until today’s maturities are reflected in the Fed’s weekly balance sheet. This will be either tomorrow (Feb 1) or Feb 8.

      Once I see what the Fed did with today’s maturities, I’ll post my update. It will show a large decline in Treasury holdings for January.

      MBS are more complex due to the 2-3 months it takes for them settle. I will include an explanation of that in my update (as I have done before).

  17. Arbuthnot
    Jan 31, 2018 at 10:51 am

    I can just imagine the looks on the faces of the senior Chinese treasury officials if and when they read this article. In all likelihood,l the initial reaction will be denial, but at some point they and others in a similar fix will have to acknowledge the fact that they have been caught up in the most massive Ponzi in history.

  18. Jan 31, 2018 at 12:04 pm

    The purpose of government debt is obviated by the assumption that a recovery will be led by private industry. Government debt is created to fulfill those public needs not addressed by private industry. The bubble in government debt is a gift to private industry, and it is implied that by sheer volume and force it will create economic growth, and not trickle down into offshore accounts and PAC campaign coffers. At some point corporate America will be able to create jobs and companies in this country which may actually cost them money to operate (think Amazon) but will by way of subsidies and guarantees be profitable. Robotics is just one example of corporate subsidies. At some point the subsidies need to be direct, and the virtuous circle of money printing to pay for government services channels directly to consumers, which may have been what was meant by the famous helicopter money analogy.

    • Beard681
      Feb 1, 2018 at 3:39 pm

      Robotics?

  19. mean chicken
    Jan 31, 2018 at 1:11 pm

    This business model seems strangely familiar.

  20. mvojy
    Jan 31, 2018 at 1:29 pm

    With our rising debt, weakening dollar and constant reliance on imported goods, this will not end well for America. We can’t do QE forever like Japan has been doing. The stock market WILL correct. It’s only a matter of time for the event that triggers it.

  21. Paul Morphy
    Jan 31, 2018 at 6:54 pm

    Will the increase in the US 10 year bond yield, impact bond yields for bonds issued by other nations, such as Germany and France?

  22. Gandalf
    Jan 31, 2018 at 6:59 pm

    Japan’s high debt is mostly all self funded. They are able to do this because of the high savings rate and low spending habits of its people, a legacy of the fact that they lost WWII and suffered through two decades of crushing poverty postwar.
    About half of U.S. debt is funded by foreign countries who are dependent on U.S. consumers to keep on buying their stuff and need to keep funding this debt to keep their own economies humming along.
    And so the U.S. can keep issuing more debt because we won WWII, became the richest and most powerful nation on earth, and made the dollar the world reserve currency.
    We are, in short, living off the inheritance earned for us by the blood and sacrifice of the Greatest Generation.
    This inheritance is not, of course infinite. One day, probably the day that China surpasses us with its economy and decides it no longer needs the dollar, our debt will become worthless, just like Greece, Venezuela, or Zimbabwe

    • Bobber
      Jan 31, 2018 at 8:20 pm

      Does Japan have significant debt? I thought the BOJ owned most of it, so it’s not really there. One pocket to the other.

  23. Jan 31, 2018 at 7:01 pm

    mvojy

    The reason our trade deficits are so high is due to the Petrodollar . With oil priced in dollars the rest of the world needs to raise dollars to pay for there oil so they need to export to the U.S. like like crazy to obtain those dollars .and this leads to the trade deficits that the United States has today !

    • Bill
      Feb 1, 2018 at 4:24 pm

      We don’t have a “trade deficit”…. we do sell the world something it needs very badly and the “deficit” is there to tell us they’re paying for it.

      What we sell is called PROTECTION.

  24. Tom
    Jan 31, 2018 at 7:06 pm

    The bonds will be sold at a price.The rates may have to rise to the point that they sell. Fed just add zeros to the ledger. They control the presses. The rub comes in: At what rate companies start to fold under their mountain of dept created with their repurchase of stocks and acquisitions.

  25. C Jones
    Feb 1, 2018 at 4:30 am

    The US fiscal stimulus will, however, benefit US growth.

    How do we distinguish between ‘end of QE’ fears and an otherwise only-to-be-expected repricing of yields higher in response to rising growth outlook?

    In addition, how confident can we be of any such precise interpretation since ten years have passed in which policy makers have cornered the bond market (and, via the discount rate, every other asset) ..?

    • Tom Kauser
      Feb 2, 2018 at 2:44 pm

      General slope of the curve! Everything must go up and down together? Orderly sell out, make offer on all fixtures!

  26. Tom Kauser
    Feb 2, 2018 at 2:42 pm

    Devalue 20% and drop the hard “R”! dolla.yeah!

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