Who Bought the $4.5 Trillion Added in One Year to the Incredibly Spiking US National Debt, Now at $27.9 Trillion?

Someone had to buy every dollar of this monstrous debt. Here’s Who. The Fed isn’t the only one. But China continues to unwind its holdings.

By Wolf Richter for WOLF STREET.

Driven by stimulus and bailouts, and fired up by the tax cuts and by grease and pork, the Incredibly Spiking US National Debt has skyrocketed by $4.55 trillion in 12 months, to $27.86 trillion, after having already spiked by $1.4 trillion in the prior 12 months, which had been the Good Times. These trillions are all Treasury securities that form the US national debt, and someone had to buy every single one of these securities:

So we’ll piece together who bought those trillions of dollars in Treasury Securities that have whooshed by over the past 12 months.

Tuesday afternoon, the Treasury Department released the Treasury International Capital data through  December 31 which shows the foreign holders of the US debt. From the Fed’s balance sheet, we can see what the Fed bought. From the Federal Reserve Board of Governors bank balance-sheet data, we can see what the banks bought. And from the Treasury Department’s data on Treasury securities, we can see what US government entities bought.

Share of foreign holders falls to 25% for first time since 2007:

In the fourth quarter, foreign central banks, foreign government entities, and foreign private-sector entities such as companies, banks, bond funds, and individuals, reduced their holdings by $35 billion from the third quarter, to $7.04 trillion. This was still up from a year ago by $192 billion (blue line, right scale in the chart below). But their share of the Incredibly Spiking US National Debt fell to 25.4%, the lowest since 2007 (red line, right scale):

Japan (blue line), the largest foreign creditor of the US, reduced its holdings in Q4 by $20 billion, to $1.26 trillion. But compared to a year earlier, its holdings were still up by $102 billion.

China (red line) continued on trend, gradually reducing its holdings. In Q4, its holdings ticked down just a tad, and over the 12-month period fell by $8 billion, to $1.06 trillion:

Japan’s and China’s relative importance in the Incredibly Spiking US National Debt continues to decline, with their combined total ($2.32 trillion) now down to a share of 8.4%, the lowest in years:

The Next 10 biggest foreign holders in December include tax havens and financial centers where US corporations have legal entities that hold US Treasuries, such as Ireland. So some of these “foreign” holders are US cash-rich corporations, such as Apple, with Treasuries that are registered in their foreign mailbox entities.

But Mexico and Germany, with which the US has the second and third largest goods trade deficits (behind China) are in 24th and 20th place respectively and didn’t make this list. The amounts in parenthesis show holdings of 12 months ago:

  1. UK (“City of London” financial center): $447 billion ($392 billion)
  2. Ireland: $315 billion ($281 billion)
  3. Luxembourg: $275 billion ($254 billion)
  4. Brazil: $259 billion ($281 billion)
  5. Switzerland: $255 billion ($237 billion)
  6. Belgium: $247 billion ($207 billion)
  7. Hong Kong: $230 billion ($250 billion)
  8. Taiwan: $229 billion ($193 billion)
  9. India: $210 billion ($162 billion)
  10. Cayman Islands: $200 billion ($238 billion)

US government funds add Treasuries. But their share declines further, outrun by the Incredibly Spiking US National Debt.

The US Social Security Trust Fund, pension funds for federal civilian employees, pension funds for the US military, and other federal government funds added $178 billion in Q4 compared to Q3 and $74 billion over the 12-month period, to their holdings, now amounting to record of $6.1 trillion (blue line, left scale). But the share of the Incredibly Spiking US National Debt, at 22% same as in Q3, was the lowest in eons, and was down from 45% in 2008 (red line, right scale):

Federal Reserve monetization of the US debt.

The Fed added $253 billion to its Treasury holdings in Q4, bringing the pile to $4.7 trillion by the end of December (blue line, left scale), a record share of 17.5% of the Incredibly Spiking US National Debt (red line, right scale). Over the 12-month period, the Fed added $2.37 trillion in Treasuries to its holdings, more than doubling its pile:

US Banks stock up on Treasuries.

US commercial banks added $24 billion in Treasury securities in Q4 to their holdings, and $277 billion over the 12 months, bringing the total to a record $1.21 trillion, according to the Federal Reserve’s data release on bank balance sheets. They now hold 4.4% of the Incredibly Spiking US National Debt:

Other US entities & individuals

After all foreign-registered holders, the Fed, US government funds, and US banks are accounted for, the remaining Treasuries are by definition held by US individuals and institutions. These include bond funds, pension funds, insurers, US corporations, hedge funds that use Treasuries in complex leveraged trades, private equity firms that need to park their cash, etc.

Holdings of these US entities surged by $332 in Q4 and by $1.58 trillion in the 12-month period to a record $8.65 trillion (blue line, left scale), for a share of the Incredibly Spiking US National Debt of 31.2% (red line, right scale), making them the largest holder of that monstrous mountain of debt:

The monstrous mountain of debt by segments.

All these holders of the monstrous US Treasury debt, combined into one mountain, and color-coded for your amusement by category of holder as of December 31:

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  173 comments for “Who Bought the $4.5 Trillion Added in One Year to the Incredibly Spiking US National Debt, Now at $27.9 Trillion?

  1. Scott says:

    Absolutely nobody is buying this dogsh$t. Anyone with a legitimate 5th grade level of math would realize this. Of course this would preclude the majority of Americans sadly.

    • Wolf Richter says:

      “Nobody Goes There Anymore, It’s Too Crowded.”

      Yields are so low because there is a lot of demand for this “dogsh$t” — and every single Treasury security ever issued was bought by someone.

      • will says:

        Almost all of my net worth is tied up in T-Bills currently, because it’s the only asset class that I’m reasonably certain won’t cause me to lose my shirt.

        A lot of people who have thought this matter through have arrived at a similar conclusion. If your savings don’t provide you with personal security, what else is it good for?

        Sure, we /could/ be doing better – but we could be doing a lot worse too. The latter is more concerning than the former.

        • Inno says:

          With you here…been buying short duration 3m, 6m, Treasurys, missing out on equity runups for past 3 years. Stupid in retrospect, but the game isn’t over.

          downside is higher negative value than upside is positive, at my age. The sequence of lose half, then double, lose half, then double, actually ends up broke, if you do the math.

        • Ralph Hiesey says:

          Will, I know you won’t lose the shirt you are wearing now, cause it’s already paid for.

          The concern I have, if you hold ten year Treasuries is what about the shirts you need to buy five years from now that might cost $599 each? and a year after that $999? Or worse?

          Maybe it would be wise to stock up now with a twenty year supply of shirts. Just in case.

        • Jdog says:

          Like you, I have considerable holdings in T-bills for that exact reason. Of course that will change in a heartbeat as soon as markets correct, and I get an opportunity to buy assets at a reasonable value.
          As I have said here many times, when the markets crash, and give investors an opportunity to make reasonable returns, the interest rates will spike due to over supply and low demand.

        • Swamp Creature says:

          Losing my shirt is not what I’m worried about. I get my shirts at the flea market for $5. They can be replaced. I’m worried about the whole country going into the ditch and getting swept along with it.

      • Scott says:

        Even if that “someone” is a computer driven bot electronic transaction which in old times was equated with the printing press. The Weimar Republic comes to mind …

      • VK says:

        Could be fake data. Who can audit the FED or the treasury? We the people certainly can’t. We just have to believe what they tell us. All these trillions and for the vast majority of Americans it’s secular stagnation.

        • Wolf Richter says:

          VK,

          Every Treasury security has a number and is tracked — and it HAS to be tracked because the government makes interest payments on each one of them, and those payments go out to whoever is holding those securities.

          That’s a $28 trillion market and most of it is publicly traded like stocks, and if you think this data is fake, well, then, fine with me, dream on. Meanwhile, I’m going to worry about other things, such as the rising long-term Treasury yields.

        • HK says:

          Who has a say in putting the numbers on these tenders, notes, bonds? If they can make up a number from a click ( and 1 phone call) then they certainly have a say in what happens on the inside and what doesn’t.

        • Scott says:

          Of course it’s fake data. No sane person thinks the US govt will remain solvent. The only thing holding it up is is the military enforced fiat petro-dollar and that gig is soon coming to a close.

      • historicus says:

        Wolf
        What questions would you ask of Jerome Powell if you had the mike at a Fed briefing?

        • MiTurn says:

          “How on earth will this ever be paid back?”

        • Anthony A. says:

          What did you spend this money on?

        • Danno says:

          When people wake up and revolt, what type of rope would you like?

        • Wolf Richter says:

          Mr. Chairman, how much money did your own policies make you personally, and how do you square that with your own policies destroying the purchasing power of labor? Thank you.

        • Do you need to raise rates now to get out ahead of this spurt of pent-up growth, since it is obvious inflation isn’t a problem and the economy might overheat?.

        • Implicit says:

          Mr. Chairman How can you still call this free market capitalism if you need to control the interest rates?
          Is QE to the banks now called interest control? Is this really a legal or proper route for a capitalistic society to take?
          You say you want inflation, yet that continues to help wealthy asset owners get increasingly more wealthy.
          Would it not be more helpful to go through the typical recessions necessary for true capitalism?
          Middle and lower class folks would like deflated assets so they could save money too. Who does inflation help the most in an economy that MUST print new debt? Do you think that you can remove the cleansing effect of a recession by going into more and more debt?
          Thank-you for listening Mr. Chairman,
          Love,
          Thiskas A Brick
          “My words but a whisper, your deafness a shout” Tull

        • Swamp Creature says:

          When are you going to resign?

        • Depth Charge says:

          How do you sleep at night, knowing you are printing thousands of new homeless people per day? Did you sell your soul to Lucifer? Do you and Lloyd Blankfein laugh about “doing God’s work?” How do you feel about meeting your maker?

      • cas127 says:

        Fed demand is baloney because Fed,

        1) Simply prints unbacked money to buy Treasury’s debt issuances…creating citizen inflation to cover for gvt failures,

        2) the Fed is welded at the hip to the G, despite alleged separation. So long as the G has more armored divisions than the Fed, the Fed will only do DC’s bidding.

        The political class views this as “the best solution”, since inflation-based government finance,

        1) Spreads the burden of gvt cock ups across the widest and deepest possible population (every USD holder and user on the planet) and

        2) other, private sector entities can be framed for causing the inflation, since they do the billing (unlike taxation). Framing others for their failures has become one of the core functions of DC.

      • David says:

        Which just blows my mind.

      • rich says:

        “Holdings of these US entities surged by $332 in Q4”

        $332 billion?

      • kam says:

        Wolf:
        Not to quibble, but the Fed’s purchases are a special category of “bought by someone”.
        Pure monetizaton of $2.37 Trillion is the underpinning of debasement.
        2×4 SPF lumber at $1,000 per 1,000 board feet is the same as gold at $5400/oz.
        Trying to plow snow after government roadblocks all last year.
        Thank you for your hard work.
        K

        • Petunia says:

          Gold used to be money in circulation and had that utility. Now it is no longer circulating currency and has lost relative value with things that still do have utility, like lumber.

          My take on PM is if it doesn’t have utility as an input, it isn’t worth much. I would rather own silver as PM, and gold as jewelry.

        • Depth Charge says:

          It does appear, Petunia, that sentiment has changed in regards to all precious metals insofar as money and inflation hedges. They should have moved massively higher given all the money printing, yet they didn’t. I could see a scenario where the FED is forced to tighten sooner than people think and PMs crash.

      • BatHelix says:

        Wolf…I know some places are required by silly rules (maybe just Europe, I dunno) to buy the bonds but at what point will people here (do we have different rules?) just say “why would I buy 0% bonds when I can just keep cash and not have the principal risk”. I’d think at some point at least some of the market would decide to stop buying them because, ok, you can make money with them going negative but if any recovery is to be believed then bonds have nowhere to go but down.

        • Petunia says:

          You sound like an economic super genius, but unemployable in finance.

          A couple of years ago, I saw an interview with a big shot European money manager, who said he was in all cash and had built a big vault to keep it in. He saw no point in investing in negative bonds at all. I thought he was right and still do, however, I never saw him interviewed again.

      • Redshift says:

        If there is a lot of demand why the need for the Fed purchases? I guess the answer is to boost demand further so as to drive down yields to a level that allows the interest to be serviced. However it still means from the viewpoint of the central bank there is a lack of sufficient demand in the market.

        • Wolf Richter says:

          Yes, the idea was to bring long-term yields to near-zero. And they did at first. Yields were already low before the new QE started.

      • Richard Benfield says:

        “Nobody Goes There Anymore, It’s Too Crowded.”

        So said the great Yogi Berra about his restaurant

        He also said: “When you come to a fork in the road…take it”

      • EcuadorExpat says:

        Well, if the fed would print me a $billion or two I would buy some of that dogsh$t too.

        Until they actually audit the fed I’ll never believe “somebody” bought those treasuries.

        The plan is to break up the USA. This solves two issues. One, there will be no entity to pay off the national debt. Secondly, there will be no party with the authority to claw back the trillions looted from the federal budget over the years. So the ultra wealthy will get to keep their loot. And the last time I checked, the ultra wealthy get what they want.

        Downside is, pensions funds are holding many of these treasuries, and when the USA disintegrates, these treasuries will be like an IOU to oneself.

        The USA retiree, the most endangered species on the planet.

        • RightNYer says:

          Most of the assets held by the ultra wealthy won’t be worth anything if the U.S. crumbles.

        • Freedomnowandhow says:

          You have to understand when a Treasury Bond or T-bill actually matures or is not renewed, the buyer receives the dollar amount they paid for the bill + at this time, a small amount of interest. Only the interest is a negative on the ledger of the Federal Government, and easily can be paid with a new T-bill

      • Silly Me says:

        It seems that the parties profiting from the money issued in the form of debt to cronies at the taxpayer’s expense recycle the same money, while rotating it as “investment,” employing the same bookkeeping trick that has been around since the introduction of pertinent taxation; the money is moved around so that it’s impossible to follow it within the financial cycles that are investigated and used for record-keeping.

    • Mark D says:

      If I am not mistaken doesn’t the fed not only borrow money but also create it?

  2. WES says:

    I think many so called private pensions are required (forced) by government regulations to buy US bonds.

    It seems like they and the Fed are the only large scale new buyers.

    Clearly foreigners are not gobbling up the latest bonds.

    This new round of debt seems to be mostly financed (monitized) internally in the US. A sign.

    Since Americans owe the new debt to themselves, it probably doesn’t matter.

    • Jos Oskam says:

      @Wes,

      “…Since Americans owe the new debt to themselves, it probably doesn’t matter…”

      I never stop being struck by this line of reasoning. Trivializing the debt problem, like it’s nothing serious dependent on whom loans to whom. This completely fallacious argument is even used by “serous economists” who should know better. Heck, they probably DO know better, but are just obfuscating, howling with the pack.

      What it really comes down to is scale. If a father loans a big amount to his son, the latter owes a very real debt to his father. But on a bigger scale, one could say “the household owes it to itself”. It doesn’t concern the neighbors. If a guy borrows money from his neighbor, the resulting debt is also real. But on the scale of the village, they “owe it to themselves”. And yes, if the village issues community bonds that are bought by American investors, the US finally “owes this to themselves”.

      However, if one goes the other way and drills down, this whole house of cards of debtor/creditor relations, big and small, linked and interdependent, comes into view. The son doesn’t repay his father, the guy never repays his neighbor, the community fails on its bonds, and so on. If all kinds of debts start to go sour on a serious scale, the US economy is going to be in a world of trouble. Not to use the word “implode”.

      And yes, they really DO owe that to themselves.

      • Kent says:

        Is the thought here that if the US Treasury doesn’t make payment on its bonds, the country goes down the tubes? Under what circumstance would the Treasury not make a payment?

        • Wolf Richter says:

          Kent, can you reply to my comment with “test” — I think I identified the issue that kept sending your comments into my spam folder. It should be fixed now. Thanks.

      • Chris Herbert says:

        When I see someone write ‘household’ when discussing the public debt, I stop reading. Congress is the issuer of currency. The ‘household’ is the user of said currency. They are entirely different. Not comparable. If we end up with a debt problem it will be private, not public, debt that is a problem.

        • Jos Oskam says:

          @Chris Herbert
          You comment on something I have nor written nor implied. Maybe next time you should just read on before opining :-)

        • eg says:

          This pernicious and persistent fallacy, the “household budget analogy” is one of the most destructive and misleading features of the public narrative around macroeconomics. It needs to be ruthlessly eradicated.

      • Cas127 says:

        Jos,

        I agree that “Since Americans owe the new debt to themselves, it probably doesn’t matter,” is pure DC pusher hogwash…but for a much simpler reason.

        When independent economic actors refuse to eat the tainted US Treasury dog food any more, the Fed habitually steps in to keep interest rates from rising.

        But the Fed “pays” for this with unbacked money, meaning that by definition the ratio of money to real assets (ie, inflation) must rise.

        “It matters” because citizen inflation is created to pay for the accumulated cancer of 50 years of DC deficits, which themselves are a reflection of the habitual failure of DC to act competently.

        • VintageVNvet says:

          Thus c10 is EXACTLY the foundational error, especially the last sentence of your spot on comment.
          At this point, in the middle of my 8th decade, I can only hope that my beloved and I can live at all close to the level that my grand parents lived on from the interest from their savings.
          Although both did small jobs, more in the way of helping family with baby sitting, fixing things while parents worked full time, etc., they were getting somewhere north of 5% IIRC, and were very clear about the thrift that enabled them to do as they pleased, grandma to own her own home, get a new DeSoto when she wanted one, etc., grandpa to live on his boat in the Bahamas.
          It appears very challenging these days to do either for working class folks who are unable to continue working, and that really appears to be the only choice even just to pay taxes, food, utilities, other ”NEEDS,” much less ”wants.”
          What a mess!

        • Bobber says:

          Remember that old adage, “starve the beast”. Well, it’s clear tax cuts doesn’t operate to reduce government spending. The governments just prints new money to cover its expenses. Also, remember the idea of “trickle down”. That’s not true either. Wealth gets hoarded, not put back into the economy.

          The rich and powerful have led us down this path, using political soundbites as bait. Now, after the wealth is thoroughly concentrated, we hear new soundbites to keep it that way.

          “Tax increases are bad in a recession”
          “That’s politics of envy”
          “Minimum wage will kill jobs”
          “Business need a bailout”

        • Jdog says:

          The fact that seems to be ignored here is that the debt service, is paid for by taxes. As debt service increases, tax revenue must be raised to meet that obligation. At some point in the not too distant future, you will see a budget crisis that will necessitate the raising of Federal taxes substantially. When that time comes, the idiots will finally understand that the debt really does matter…..

        • Nacho 'censored' Libre says:

          In ideal world, people use second order thinking and realize ‘tax cuts’ do in fact increase tax revenue.

          Fiscal Year Revenue
          FY 2021 $3.86 (estimated)
          FY 2020 $3.71 trillion (estimated)
          FY 2019 $3.46 trillion (actual)
          FY 2018 $3.33 trillion
          FY 2017 $3.32 trillion
          FY 2016 $3.27 trillion
          FY 2015 $3.25 trillion

        • Wolf Richter says:

          Now adjust this for GDP growth and population growth or employment growth. And then adjust it for how the Fed has pumped up the markets and generated a huge amount in capital gains taxes. California is reveling in them right now, as is Texas… haven’t you heard? Those tax revenues from capital gains taxes weren’t due to tax cuts, but due to $3 trillion in money printing and interest rate repression.

        • Nacho 'censored' Libre says:

          Capital gain taxes are only about 10% of total tax revenue. A lot of the profit is either unrealized or tucked away in tax sheltered accounts. So the Fed effect there is not as exaggerated. (I used Bureau of Economic Analysis as the source).

          I don’t disagree at all with your take on the Fed pumping money and suppressing interest rates. Fed has been doing it since 2008 crisis. But that’s separate from ‘tax cuts’.

          In fact it’s during the ‘tax cuts’ era that Fed actually could raise the rates AND bring down its balance sheet.

      • rich says:

        Dick Cheney: “You know, Paul, Reagan proved deficits don’t matter,”

        Could Cheney have been an MMT pioneer?

        • Cas127 says:

          The number of conservatives who have bought into MMT horsesh*t relative to liberals is tiny.

          Conservatives don’t have a savior complex when it comes to considering governments.

          And there is a huge distinction between 75 million plus conservatives and the controlling majority of Republicans in Congress (who have repeatedly betrayed the fiscal conservatism they mouth).

          There is a reason why the term “political class” exists…it represents the tax and dollar eaters of DC (of both parties, in and out of gvt) who represent no one but themselves.

          They are a mafia, masquerading as a government.

          The two “parties” are in reality just two gangs fighting over the protection racket money.

        • timbers says:

          Deficits only matter when Ds are in power. The fact Ds have a better austerity record than Rs does not matter, and the deficits caused by Rs don’t count because a lot of that comes from tax cuts for the rich…which everyone knows reduces deficits because they increase revenue. Only govt spending causes deficits, everyone knows that, too. And we’ve never ever done $1.9 trillion before so like three 6’s on the back of Damien’s.

        • urblintz says:

          Military Keynesianism… they’ve been playing MMT with the Pentagon budget for a looooooong time. And since the US economy would probably collapse lacking the largesse extended to the war mongers…

        • Petunia says:

          Cheney probably meant they don’t matter yet, at least not in his lifetime. But then bad people tend to live forever, so maybe they don’t matter.

        • Not as long as the Fed is holding securities in exchange for an IOU. When the time comes to pay back the principal, they tear up the obligation. The residue is thin air cash in the system, much of that held in foreign reserves in the form of bonds. Bonds are cash which has been sterilized. In order to get that cash into the hands of American consumers, (MMT?) there must be products for foreign nationals to buy, and no capital controls. There aren’t any, and there aren’t any. US workers make products for export and the circle squares. Free trade and more free trade.

        • timbers says:

          “Cheney probably meant they don’t matter yet, at least not in his lifetime.” Not likely. More likely is Cheney meant deficits don’t matter for Rs, only for Ds. For the reasons I list above.

      • Scott says:

        The difference is dad can’t print more money, he starts with a finite amount. The government can sell IOUs as long as the Treasury is creating money to buy them. No one knows how long this will work, but it is already a lot longer than anyone thought.

        • Yaun says:

          It will be interesting to see the evolution of this. Will the US be a one off event? The recent social disturbances suggest otherwise. Argentina has followed the MMT prescription for 70 years. MMT proponents would say, but they don’t owe their debt in their own currency. Which is correct, they can’t because their history of debt resolution by devaluation has made it extremely difficult to raise debt in their own currency. So for the last 20 years they have turned to the method of being perpetual defaulters instead, which also makes it ever more expensive to raise capital in dollars. All the while they used the debt so that they never had to reform their system to deal with the underlying productivity issues. And as a consequence their per capita GDP has been falling in relation not only to the US but also direct peers like Brazil. At some point the music stops. But it is indeed amazing how often you can play repeats without people getting tired of it.

        • OutsideTheBox says:

          U. S. Government debt can be repaid over centuries.

          Corporate and personal debt has a smaller window….about 4 decades.

          So now….It’s pretty easy to see the more pressing type of debt to be repaid.

        • Scott, but the longer it has gone on, since 2008 big-time for us in the Debtor Nation of All Time, going on 12.5 years, the higher the probability becomes that the activity will cause serious financial system and economic effects. The Fed will eventually get the MEMO.

          The banks are buying this below-inflation-rate stuff and they also have $Billions in technically non-performing commercial property loans as well as forbearance to the moon residential mortgages (new don’t-pay-until dates now of June 30th, 2021). We never expected anyone to play on the railroad tracks either.

          Then we have the financial markets where margin debt is at an all time high (SPECULATION!!) and a baby Black Swan could cause an implosion at any moment. The bond vigilantes are back in town, and the sight of some very real U.S. inflation is backing bond yields back up faster than a politician can tell a new lie.

          The end result of interest rate suppression by the Fed is coming plainly into sight, but the gamblers at the Casino at Wall & Broad have not AWOKE yet from their drugged high on astronomical equity prices. Probability increase per month of reversion to mean is now parabolic along with equity prices!!

          Just because a shooter hasn’t landed a round on you yet, doesn’t mean that the next round won’t hit you between the eyes!!

      • matt says:

        If the father loans his son money, the son will spend the money in the village. To make the analogy work, dad has to own the printing press that prints scrip that is widely accepted. The problem is not that the son has debt. The problem comes when the village stops accepting the dad’s scrip. When the son owes the other villagers money denominated in dad’s scrip, they have vested interest in honoring dad’s script. At some point dad will loan so much to the son that the amount the son owes to other villagers is so relatively small as to be meaningless. Then dad’s scrip no longer needs to be accepted.

        The most concerning number in those charts to me is the sinking percentage of debt owned by China. If they own 50% of the debt, the debt is their problem. If they own 1% of the debt, they can write it off either because the amount is a small portion of their wealth or it is 1% of such a large number that they will never be repaid. Then they will stop accepting our scrip.

        Unfortunately, the number that matters is between 1% and 50%, but we don’t know exactly what that value is. Global peace is not kept by the military or the police. Global peace is kept by the acceptance of the US dollar which is ensured by that unknown number of percent of US debt held by China, the number below which they don’t value dollars. The US dollar is accepted because the cost of de-dollaring is very high to nations that measure their wealth in US dollars.

        Militarily, China could invade Taiwan whenever they chose to, causing global realignment at America’s expense. The quality of their military is rapidly approaching the quality of ours, the quantity of their military in the Pacific is higher than ours, and their willingness to bleed is much higher than ours. The thing that is holding them back is that the wealth they hold in dollars will disappear once they do invade. China’s assets will be canceled, making their dollar wealth go to near zero. The dollar’s value will also take a massive dive destroying their remaining wealth. There is a cost benefit analysis that goes on in China to make the decision to keep playing the dollar game. Every trillion we waste pushes that analysis toward quitting, and that means toward war.

        • timbers says:

          Matt, Good point. IMO, those running the US when it comes to confrontation w/China/Rus vastly over estimate US strength as much as they underestimate the ferocity and power a response to a US direct attack would produce. Fighting for ones freedom & sovereignty is different than fighting to extend an overextended, corrupt empire.

        • SpencerG says:

          China may be ABLE to invade Taiwan any time they want…. but it will not be a SUCCESSFUL invasion for a decade or two (if then). Unlike Normandy (which is about the same distance across the water) China will not be able to stage an invasion force in secret (satellites), pick any time for a crossing (typhoons), or land on unopposed beaches (70 years of fortifications).

          And those are just SOME of the problems that China has. Never mind that they have neither the Army or Navy required for an amphibious attack.

        • stan6565 says:

          matt and timbers,

          thank you for the very good points here.

          I think that the 1-50 number is the one where a business person would say, “sod this contract, I am walking, it’s just too much hassle. Sue me”. That number to me is in the region of 25-35%.

          Which would suggest to me that combined Japan/China exposure is already well below their pain threshold and one or both are just waiting to drop out.

          I mean, the whole treasury’s own debt purchase story that sounds exactly like what the good folk at Joyy were doing over the last few years, only to come unstuck. Inevitably.

        • MarkinSF says:

          Their willingness to bleed is much higher than ours? Not so sure about that. The Chinese have never been particularly combat oriented. The Japanese handled them mightily in WW II and I don’t know if they’ve ever been engaged in a war in which they’ve won. While their weaponry has gone upscale none has been tested in combat and their propensity to cut corners on anything they produce makes their claims dubious.
          I think they are terrified of invading Taiwan and they definitely do not want to test the US.

        • Thomas Roberts says:

          matt,

          China isn’t as strong as the CCP claims. Their actual gdp growth rate fell rapidly from about 2009 until 2015. By 2015 their actual gdp growth rate was estimated to be about 1 to 3% by many different individuals and organizations. After that, China had to rapidly stimulate their economy through very high household debt. Various estimates put china’s gdp at 30 to 50% smaller than the CCP claims. Starting from about 2010 and rapidly gaining momentum through the present, factories have been relocating out of China. At first there was enough new factories being put in to replace lost ones, but that hasn’t been the case from at least 2015, possibly ealier.

          The CCP running out of money, is the primary reason china’s holding of US debt is falling.

          China’s military is far weaker than they claim and their soldiers are among the worst trained and ill equipped in the world.

          That short distance to Taiwan is one of the most dangerous streches of water in the world. Not only would it be far more difficult than you think. But they will effectively end most foreign relations immediately if they try to take Taiwan.

          As it stands, China’s only real way to bring in money is though manufacturing, which keeps leaving, when the foreign manufacturers give up on the China market dream, it’s over. China is dependent on huge resource imports as well. They need alot of foreign components and machinery to keep China running, which increasingly, will be difficult to obtain as companies and countries will not want their intellectual property stolen anymore. Small drones are really the only thing that has been pioneered by CCP China (but other countries will start to make them) and there isn’t anything, anyone else needs from them. Rare earth metals aren’t that rare and because they keep thrreatening to cut off supplies, new sources are coming online. The only other significant resource from them is cotton.

          There is also a massive looming water shortage that will hit them in near future as ground wells are run dry, stealing rivers from tibet as they will probably try to do, will result in a war with India. Where it’s expected that India will win. India likely won’t be able to go father then tibet, but they should be able to take tibet. Russia and Russians also heavily favor India and will back them, last year after the skirmish at the India border, Russia began to cut off military supplies to China. China’s massive resource dependencies and looming food shortages, make it a country with little leverage. During the pandemic that they caused the CCP thrreatened to cut off pharmaceutical supplies to America. Stuff like this will force other countries to get everything important out of China.

          China’s misles and navy depend on foreign components and china’s navy would easily lose against Japan’s alone.

      • FROMKS says:

        Got the generations wrong on that one.

        The father took out the loan for himself, and cosigned the son. Father enjoyed the stimulus (took a cruise and remodeled the bathroom). Now the son is on the hook. Good luck collecting. He’ll take out another loan and cosign his grandson.

      • Brad Tifman says:

        Dig a bit deeper, and one will find that within a fiat/grift money system as we are burdened with, so-called “debt” is really our wealth stolen from us.

      • Freedomnowandhow says:

        Pretty wrong because you leave out that the under the Federal Governments direction the Treasury directs the Fed to create the loan amount out of the total trust of the Federal Government. Your long example is a closed monatary system with no new dollars being created, and that’s not how our money is created. Sure in a closed monatary system there would be no growth as new dollars are needed for expanded trade or borrowing.

    • Chris Coles says:

      “I think many so called private pensions are required (forced) by government regulations to buy US bonds.”

      This is by far, the most important aspect of the present finances of many national finances; a very good example being here in the UK. This all goes back to the end of an era; before which, pensions were capitalised by “savings Institutions” buying into public offerings, and thus were the source of the transfer of the savings of the nation . . . back into the industrial economy. Today, almost all such savings are now directed into government debt; while at one and the same time, we repeatedly read about how government are funding new initiatives to boost technology.

      • lisa2020 says:

        Checked out your link. You are right on!!!

      • Freedomnowandhow says:

        Actually the % of private pension investment in U.S. Bonds is very small as the return is to low for financial gain . Pensions depend on a higher return on the fast majority of their investments to keep guarentee of benefits. T-Bills and Bonds are used as a safe haven for a small core of investment and a vehicle to put pension fund assets until the right time to invest in more profitable private investments. If your analogy was correct all private pension funds would be completely invested in Government bonds, and that’s not the case historically. Buying Government Bonds doesn’t decrease the investment in industrial research or investment. It is a holding place for dollars until the right opportunity exists .

    • Jennifer Christiano says:

      I think they’re not technically “forced” to, but the so-called “feduciary rules” “strongly encourage” the funds to invest in safe assets – with “safe” being defined by the Feds, of course. Public pensions, at least, are allowed to invest in gold and silver, but because of the rules, very few lawyers or financial advisors will encourage pension managers to do so. The reality is that every pension should have a solid base of real money. The only reason G&S are “risky’ is because the whole COMEX system was set up specifically to fleece PM investors vis price manipulation by the big banks and hedge funds that run the thing. The system is very rapidly breaking down, however, and the next Lehman moment may be rapidly arriving thanks to the ongoing silver short squeeze and panic buying. The COMEX is finally – FINALLY – looking as though it’s in the process of cracking, and institutions that have PM’s are going to make out like bandits. So will individuals, if you can get your hands on any substantial quantity at this time. Follow Chris Marcus at Arcadia Economics for real time updates on OM developments, and look at Gold Out of the Box by Dan Amerman, CFA, for a unique, safe, logical and profitable way to allocate between gold and stocks over time.

      • Petunia says:

        Much of the “junk” silver being purchased are currency coins containing silver. These coins can never legally be melted down for the silver. Just like pennies can’t be melted for the copper, etc. My point is most of the investment in silver can never be legally put to productive use, except as the face value of the coin.

        I don’t see how holding these currency coins is an investment. Unless you have a way of melting them down for the content and don’t care about the regulatory constraints.

    • Saltcreep says:

      I’m fairly sure you’re being specious, WES, but will add some commentary anyway.

      I’ve even read the ‘owe it to ourselves’ argument proferred in respect of global debt…

      As if that means it’s just a net zero effect or something, and the exponentially increasing issuance of IOUs is of no concern. Wouldn’t it be wonderful if we just owed it all to some aliens instead, so they could take the hit when they eventually get back nothing like what they’ve calculated for in real terms?

      It sort of is a problem when a large portion of people here amongst us have calculated that they’ll be receiving a bunch of stuff when they stop working or get ill, and start relying on all the promises owed to them by others in the same system, based on the same deteriorating energy and resource base.

  3. Manfred says:

    The very last graph shows BILLION but the
    very first graph shows TRILLION. Typo or true ?

    • Wolf Richter says:

      Not a typo. The first chart is in Trillions — hence, “27” and “28.” All dollars charts below it are in billions, hence “28,000” or “6,000” or “500.”

  4. George Sakrzewski says:

    The ultimate ponzi scheme. Interest paid from taxation, debt on maturity paid from new debt. Perfect.

  5. Stuart Davis says:

    Wolf, what lies beyond the wazoo?

    • will says:

      Don’t kid yourself – it’s all wazoo from here, buddy!

    • Cas127 says:

      DC is as far up the wazoo as you can go. DC is the source of the wazoo.

      • MarkinSF says:

        Sure. But who owns DC?

        • Goldman Sachs and JP Morgan-Chase own DC. We serfs are just left holding the empty money bag.

        • Cas127 says:

          Which party do you want to talk about?

          Republicans are owned by very large multinational businesses, heavily aligned with China at this point.

          Democrats are owned by corrupt teacher and other government employee unions, along with race based pressure groups and the multi generational dependency class that DC has created and cultivated.

          Both parties have ruined what was the unparalleled economy on earth following WW 2.

        • RightNYer says:

          Cas127, and to add to this, neither party is interested in limiting the flow of unskilled, illiterate peasants from the third world.

        • Jdog says:

          DC is owned by the people who pay them… Millions and millions and millions. You work for who pays you…..

      • c_heale says:

        Repubs and Dems are both owned by multinational businesses. Neither give a damn about the teachers unions, BLM, small businesses, illegal immigration or Midwest any other thing – they just pretend to. It’s just optics to make their dumbass voters think they matter.

    • 2banana says:

      If history is a guide.

      Misery, ruin and bankruptcy.

      Then wholesale radical changes of government.

    • Wolf Richter says:

      Inflation? In the end, that’s how broad debt problems have been dealt with.

      • Cas127 says:

        The kind of inflation necessary to “deal with” debt problems (100%+ debt to fictional GDP) is the kind of inflation that ends governments.

        • Freedomnowandhow says:

          G.D.P. is based on a year, total government debt is a accumulation over the entire existence of government debt. Government debt is the total accumulated dollar amount the Federal Government has added to the economy or money supply. There’s a huge difference in this debt as opposed to personal debt. All the T-bills and bonds are savings vehicles for those Wolf has mentioned, it hasn’t disappeared.

        • Cas127 says:

          “it hasn’t disappeared.”

          Well, it wasn’t invested in any form that has enabled the G to ever *reduce* (or even merely keep flat) the continuously growing debt.

          If G borrowing was used productively…why is it that the G is continuously unable to avoid deficits?

          Why doesn’t alleged economic growth enable the G to avoid having to spend more than it takes in…every single yr…for 50 yrs?

      • gnokgnoh says:

        Yes, but aren’t we really facing deflation, similar to Japan over the last 30 years? Without broad economic growth in the real economy, we will end up simply servicing the increasingly massive debt at very low interest rates. As you noted and as with Japan, in this environment, growth stagnates and labor purchasing power erodes completely.

        Thirty years ago, Japan had over 30 of the top 50 firms in the world. Today, only Toyota is in the top 50. We’re headed there.

      • gnokgnoh says:

        Japan’s debt has been around 235% of GDP and at the full crash was 260% of GDP. The U.S. is currently at about 130% of GDP and climbing, but the parallels are striking.

    • Swamp Creature says:

      The debt chart looks like a parabola, approaching infinity at some date in the very near future. At that point we would be in full Weimer Republic mode. Before that happens we’ll see anticipatory buying of staples and runs on supermarkets. The Fed will respond by tightening up and there will be a run up in interest rates and a bond market crash, followed closely behind with a stock market crash.

  6. YuShan says:

    On top of this there are also $trillions in unfunded liabilities (pensions, medicare etc) that have to be financed by more borrowing or taxing.

    • Jack 07 says:

      YuShan

      Yup, these trillions in Wolf’s article constitute the “base money “!

      The broad money however is what you mentioned!!!

      It’s only a game of numbers, you know:)

  7. Paulo says:

    This article reminds me of the many comments made in the past on WS about investor debt; how debt is necessary to ‘get ahead’, or maximise investment opportunities, etc. These were comments made by fellow readers, and I do agree they might be right for time and place.

    However.

    Most of us would not be worried if this was an occasional situation, for example….to get people through the pandemic, modernise infrastructure, or for necessary defense like the sudden ramp up for WW2 production. (War bond tours).

    But for almost everything? As a natural state of affairs to pay for operations? Then, you pile on required pandemic requirements so people don’t go hungry. I guess Texas is now going to need some sudden cash to pay for that ‘frozen’ deregulation, double entendre intended. CA might have additional fire seasons, or there might be another ‘Sandy’ next year? That is what debt is for, imho. Debt is for strategic long term investments or for sudden emergencies. Not, for day to day operations with pile ons, as they occur.

    The last 12 years, in particular the last 4 years, has seen massive debt increases. In 08 -12… the GFC was a dangerous state of affairs that had to be addressed. But the last 4 years was the supposed, ‘greatest ever economy the World has ever seen’, (as demonstrated by the Market). Debt should have been addressed in 2016, onward. Now? There is no choice but to borrow. We will only know how this will end in the rear view mirror and it could go full Weimar. And what did that bring us?

    • DanR says:

      Do you worry that if the debt was addressed from 2012-2019 then we would not have had the greatest economy the world has ever seen?

      • Paulo says:

        Dan,

        I was being sarcastic because I believe it was just smoke. But then maybe I missed your sarcasm. :-)

        regards

        • DanR says:

          No worries. I find that the printed word and emails masks sarcasm. Sometimes I do ask questions like that just to draw out issues more. Anyway it was early in my day when I posted.

    • RightNYer says:

      And even during emergencies, the spending should be prudent. Giving people “stimulus” and “enhanced” unemployment that ends up going to buy new iPhones or flat screen TVs is not a good use of borrowed funds.

    • kam says:

      Paulo:
      By postponing “Creative Destruction” in 2008 (Too Big to Jail), we have now come to this point.
      Those that create nothing, but control everything are now flying full speed into the mountain, blissfully ignorant while drunk on power.
      Unfortunately, we are the passengers in the back.

    • bungee says:

      debt for every day stuff and long term investment is fine. but emergencies are to be handled with savings. that they’re not is why we live in a perpetual state of crisis. so hold on, we ain’t seen nothing yet. thanks for the charts Wolf.

  8. MarMar says:

    By “blue line, right scale in the chart below” for the first chart, I think you mean “black line, left scale in the chart below”.

    In fact all the blue lines look black to me.

    • Wolf Richter says:

      Internet colors, when you see them, are a function of your screen. The line is a standard Excel dark blue and in the spreadsheet and on one of my screens looks very blue. On my other machine, it looks darker. But still not black compared to the axis labels which are black. Maybe you can see the difference on your screen (I can).

    • lisa2020 says:

      Blacks and blues do have that tendency to merge into the wild blue yonder, which is ultimately all white, which is infinitely nothing which is all points in-between which is of course all multiples of all spheres incased into infinity, which none of us can see with any focus whatsoever.

      Is that a chilling algorithmic detail or a fact exploding?

      • 91B20 1stCav (AUS) says:

        why is it you lisas keep upping the necessity to constantly refill my coffee mug to replace that lost to sprayage???

        may we all find a better day.

  9. MiTurn says:

    As a father and a grandfather, I’m discouraged by these charts. It only makes me worry about the future of my kids and grandkids.

    I’m not sure this problem can be fixed. The necessary reforms will not win voters’ support.

    But in time they will fix themselves.

    • RightNYer says:

      They can’t be fixed. We’ll keep going full speed ahead until the currency and the economy completely collapses. Hopefully we don’t descend into anarchy or a dictatorship after, because that’s what historically has happened.

      • MiTurn says:

        “the economy completely collapses”

        That’s what I was inferring RightNYer.

        It will fix itself. But it will probably require a complete re-boot. The laws of economics work….in spite of the FED, et. al., who believe otherwise. They have a tiger by the tail…

      • Bobber says:

        Who we talking about….Trump, Oprah, Tom Brady?

      • Swamp Creature says:

        wolf

        delete my prev comment

      • Swamp Creature says:

        I take back what I just said.. I don’t think we will ever get to the state of Weimer Germany with the debasement, degeneration of society, and violence that occurred there. We are too smart for that. But if we keep debasing the currency at the current rate we could see more unrest just like what happened last summer. It could even be worse like 1968.

  10. fred flintstone says:

    No insult intended……I used to worry about my children and grandchildren……I have recently started to worry about myself……in about 20 years if this mess does not get turned around our net worth will be negative. If you adjust the asset values for normalized interest rates.
    Turned around…….both parties will soon pass a massive infrastructure bill with another trillion on top of the 1.9 trillion being debated. Lets make health care free, college free, increase defense, increase social security, cut taxes………right.
    There will be books written some day about this madness.

    • Nathan Dumbrowski says:

      25 years ago my friend from Japan was telling me his home in Japan was worth over a million dollars. I chalked it up to him bragging since they rented their home here in California. But I’ll be damned that was when things were going HOT in the real estate market back in Japan. Well things cooled off quite a bit. But based on the amount of money poured into the economy by all things government including buying their own loans up with money they can print at will. It seems we are all living in the dream stage where our homes are all million dollar listings. Great article and commentary

  11. There is no free, there is only paid for with inflation as opposed to taxation. And unless you own assets and owe dollars, you’re going to pay a very high price for that inflation.

    • Jdog says:

      Economics 101: Money is a representation of goods and labor. When money is produced, and put into circulation, without corresponding increases in goods and labor, the new money has the effect of debasing the over all value of all the money…

      Translation: Your paycheck is going to be a lot less valuable in the future.

      If you think you will get a raise to match the growing inflation, don’t count on it. You will be luck if you are not replaced by automation in the next decade….

      • Dale Chiusano says:

        jdog

        Agreed, that’s why people are continuing to work well after they “retired” . Its also good from a mental point of view to be out in the real world and contributing to the production of goods and services.

  12. gorbachev says:

    You can purposely devalue your currency -as Italy has done many times- or let the market do it for you. Now the market
    devaluation doesn’t look so bad if all other important currencies
    in the world are doing the same thing. So same advice. Hold some cash for
    emergencies and buy assets you believe will hold their value
    with the rest.

  13. Mark Stoneweapon says:

    “The Federal Reserve can be criticized, and rightly so, for its monetary madness, but at least it is the only central bank that truly analyzes the global demand for US dollars” – Daniel Lacalle

    This is a great article from May 2020 to help understand the financial engineering of the US dollar.

    https://retirementincomejournal.com/article/why-the-world-has-a-dollar-shortage-despite-massive-fed-action/

    • Wolf Richter says:

      This “dollar shortage” meme is BS. But there was a shortage of “cheap” dollars as yields had spiked, and highly leveraged bets were blowing up because there were trust issues with some of the funds behind those leveraged bets. The Fed should have let them blow up.

      • RightNYer says:

        Yes. The “interest rates are low because of a glut of dollars” is tantamount to the “Americans won’t do X job.”

        There is a shortage of CHEAP dollars, and Americans won’t do X job at $8/hour.

      • Wolf, kind of like the Excess Savings argument from the Fed as to why interest rates are so low. Baloney!!

    • cd says:

      Read alhambra partners he has this down pat, probably best most realistic fact based views on dollar shortage….and the rest of the ilk of the Fed, treasury mafia

  14. nick kelly says:

    One good thing about an avalanche, it makes a snow drift seem like no big deal. Now that the US is running a deficit of a trillion every 3 or 4 months, can we stop reading: ‘What if China ‘drops the atom bomb’ and unloads its one lousy trillion?

    Japan has overtaken China as largest foreign holder of US debt.

    Further context: China’s trillion is only slightly more than the 900 million Citi accidentally wired to holders of Revlon debt.

    • Mark Stoneweapon says:

      China’s US Dollar reserves only cover 60% of its existing commitments.
      This is why Japan backs the Yen with large Dollar savings. The ECB has yet to learn this lesson.

    • Gazer says:

      “China’s trillion is only slightly more than the 900 million” … Oooops …. would be true for “China’s BILLION”. But then, 1 trillion is 1,000 billions.
      Very common error when comparing “lions” (milLIONS, bilLIONS, and triLIONS)

  15. Pacifica says:

    Ah, there’s no problem at all, let’s just keep playing soccer with the ice blocks from that iceberg we just hit. Everything is going to be just fine, although there’s a little crack in our ship and it’s tilting up a bit..we are the unsinkable titanic!

  16. Robert says:

    Japan’s central bank owns over 40% of their national debt with no inflation. I really can’t see why the US is not pursuing the same route as Japan as a matter of policy.

    Somehow though, I think when the US goes Japanese, there won’t be the same outcome. Japan was never the primary global reserve currency, so the loss of reserve currency status still needs to be baked into the treasury yield expectations cake.

  17. Minutes says:

    It gets better Wolf. Based on the last few interviews that Powell has given, he seems to be adding something new to the list of mandates.
    1. full employment
    2. stable prices
    * Social Justice Warrior
    He seems to now be saying that running the economy super hot will make the difference for large swaths of people who have done poorly in America. Unfortunately the numbers show that outside of the top 10% or so, the middle class has gone backwards on almost every metric since 1970’s aka a long time ago. And that includes people of all races of course.

    • Jack says:

      Powell loves jawboning cuz that’s all he got, the economy is running freezing cold when you deduct free cash giveaways. no debt repayments, extended unemployment & top up. Powell saying they will let the economy run hot is a ruse cuz he can’t even get it warm with a spend of 20% of gdp.

      Can any of this head in the sand policies continue?? No they can’t, in a split second they will turn from austerity, how do you compute 2019 the US was snatching food stamps away from people & now they give away 20% of gdp not including debt holidays, it’s just another bailout of corporations, world debt to gdp is now 355% with a shrinking world GDP.

      Society now is so uneducated that they believe whatever they are told, in the end though reality rains supreme, red hot, he wishes.

      • Jack says:

        Turn to austerity*, It’s really sad society is so uneducated they believe all this, there is not enough money in the world for governments to borrow more, all this borrowing is strangling the economies to death.

  18. Crush the Peasants! says:

    I am still confused about how UST prices and yieldds are determined. I know that a bond auction occurs at known times, and that the criminal banks that own the Fed, the so-called UST market makers, bid on the price of the bonds. And then the bonds are traded in the secondary market. I assume the Fed also participates in the auction, and possibly the secondary market, but really don’t know.

    But as the criminal banks have inside information via the Fed, they can game the market. One way – knowing that the Fed will downplay real inflation in the future, but that there is enough buzz about inflation today, to lower the bid price of UST’s, raising the yield. Then when the Fed downplays inflation concerns in the future, and it ad its owner banks raise the bid price for UST’s, the yield falls, prices rise, and the criminal banks sell the now low-priced bonds in the secondary market, fleecing taxpayers of money.

    A type of frontrunning and Just one way. Or, a more sophisticated boiler room operation.

    Can anybody comment on how this all works?

    • Jack says:

      Fed can’t take part in the primary market, only primary dealers, the auction is for primary dealer banks, the Fed buys from the primary dealers through the secondary market.

      When you ask these questions about the price of bonds people have different opinions, my opinion is banks will by treasuries & so will smart investors knowing this stock bubble will burst & a flood of money will rush to safety of bonds collapsing yields & crashing stocks to real valuation levels, others think inflation will run rampant & the game is to devalue the Dollar to reduce the debt.

      I don;t know what else to say, you assume the Fed has control when they do not, ya thesis that banks have inside information is sound, they will & are loading up on treasuries & will make profits when yields collapse from the rush out of stocks, again that is my view, most believe the opposite. One last point is this, banks have to win cuz they hold peoples funds, if they lose we all lose.

      • Jack, the panicked Dollars out of stocks can go to cash, currency, and gold & silver, even crypto’s which I fail to understand. There is no guarantee of making any money in bonds within the next ten years when inflation is headed to 5% to 6% easily in 2021, and long-term yiedls are several hundred basis points below real world inflation.

        How can bonds be a safe haven relative to stocks when the risk of default by the majority of issuers has never been higher!! That includes the U.S Government that is already defaulting by letting the Inflation Genie out of the bottle via the Runaway FED sitting on its hands. Pay back the mountains of debt with DEVALUED U.S. DOLLARS, hello Weimar. Many a slick way to default on debt.

        • Jack says:

          What you say about going to cash & metals is true, think of this though, it will take huge outflows from stock to get the yield down, so say 30-40% will go to bonds, 20% cash.

          I don’t believe the US will default or are a risk of default, sure many will have great arguments to the contrary, where else will they go when bonds can give you a capital gain even at such low yields, Bitcoin is just a fad, tulip mania, Gold & Silver will collapse with the stocks, there is no way they will not, further down the line the should bounce back & break new highs, I have said this for a while & where is gold, sub 1800 & falling.

          I also think the Dollar will rise substantially short term, the reality is where else will people go?? The Euro is a broken currency being kept up by Germany, no debt sharing, not viable, bonds are safe cuz the US has the biggest army, the reserve currency & still a country of laws & property right.

          I understand what people say but in a panic people do what they have always done, sell stocks, buy bonds, buy Dollars & seek refuge, then when markets bottom they go back to risk on again, same tune, the only difference now is people think it’s different & it never is.

          So to sum up, stocks have to fall a very long way so sufficient funds go to bonds forcing yields down, once all the lies & bad debt gets flushed out, when everyone is in despair it will be over, that’s what I believe, it’s only the Fed sticking their nose in wanting their cake & to eat it caused this crazy market, let free markets will correct by itself, soon it will by force & noone can stop it.

        • Jack says:

          Another point is I don’t believe this inflation is gonna last, the world is in a deflation spiral, sure people in the US see inflation cuz the Dollar fell 15% plus, I don’t see any inflation in the UK just price falls, as the Dollar rises people will see deflation.

          Remember all the cash thrown at people, debt holiday breaks, when ya don’t sweat for money via work people tolerate price rises, I don’t see the US inflation lasting, it’s peaked right now, I guess it depends what you believe, I believe the world will be fighting deflation for a long while yet & the US will get the memo soon. Ya simply can’t have inflation is a sinking economy & 15% plus unemployment not matter what they say.

        • c_heale says:

          The world is in a permanent deflation spiral since we no longer have sufficient energy to power an oil based industrial society. Labor and capital mean zero without energy. We’re heading back to the 19th century at least energywise, and probably the middle ages.

      • Crush the Peasants! says:

        Thanks, Jack. I am entirely rusty with bond calculators, but in general, if you put $1 million in the 10 year UST at a 1.3% yield, and sold when the yield dropped to 0.62%, the yield in Apr 2020, which may be reached yet again, I calculate you’d net approximately $66,000 in profits.

        So if the rise in interest rates is a bt of a temporary head fake and you guess right, you can make a risk free return on the 10 year. And if you guess wrong, and the yield never drops to below 1.3%, you can hold to maturity and get back your $1 million, plus the annual return on the bond, totalling $130,000 for the ten year holding period. Opportuunity cost, of course, inflation, etc.

  19. Jack says:

    This is exactly why I said what I said in ya previous article, it’s a total disaster & not just the massively rising debt but the arrogance of forcing yields down, even though it failed & yields are spiking.

    Ya can’t beg for money by borrowing then deliberately allow Dollar shorting & bond shorting to records causing(By hedge funds who get bailed out I might add), a 15% loss of currency value as well as 15% loss on principle through bond shorting, 30% total loss, all this just to keep a hyper bubble in stocks from bursting, when people flee bonds what is the greatest debtor nation in history gonna do..

    If you look at history this story always end in crises, I think we are witnessing the first stages.

  20. historicus says:

    This really isnt debt…
    for with debt, there is an expectation of paying back or retiring the debt.
    There is no glimmer of intent to payback what has been created …especially since 2009 when QE began.

  21. To wipe out the 28 trillion $ debt, imports, rental properties,
    & local production are being reduced, raising prices.
    Stocks, bonds, & rental properties are overpriced “tulips”.

    Soon, you’ll wish you had become a plumber,
    so you wouldn’t have to live in a tent.

    Citigroup’s “Panic/Euphoria” (PE) index:

    https://static.seekingalpha.com/uploads/2021/1/11/6174001-1610402017199415.png

    – Forward – “Price/Earnings” (PE) ratio
    ( – Forward – GDP is projected to be amazingly high:
    q1: 12.23 %, q2: 38.19 %, q3: 10.93 % ):

    https://static.seekingalpha.com/uploads/2021/1/11/6174001-1610402013220585_origin.png

    Tech stocks w/ negative earnings are priced at a trillion $:

    https://static.seekingalpha.com/uploads/2021/1/11/6174001-16104020193729846_origin.png

    Earnings/Profit no longer matter (right?);
    so here’s the price-to-sales ratio:

    https://static.seekingalpha.com/uploads/2021/1/11/6174001-16104020205240283_origin.png

  22. Gerry says:

    The ultimate holders of this debt are Americans, with shares apportioned to every one of us on the books of the USA Corporation. So, while hundreds of billions of dollars in Treaury bond interest payments go to the Rothschild-Rockefeller Cabal entities in the City of London, people like those Texans waiting in their cars on miles-long free food lines last week now have to endure living in freezing homes. But those chilled folks do have plenty of super-expensive bird killing wind turbines, all made by corporations reporting to their City of London masters.

  23. A says:

    Wolf, so what happens when this $8.5 trillion in privately-held paper yielding 1% runs up against 5% inflation? (After people wise up that CPI is not real)

    • Wolf Richter says:

      Yes… Holders of long-term paper have already gotten kicked around over the past few months as yields have risen. Index funds tracking 20-year Treasury maturities are down something like 15% since August. Buying long-term bonds at historic low yields, hoping they will go negative, has turned out to be a costly bet.

  24. Dis says:

    The definition of seigniorage (hat tip to Google search) comes to mind:

    seign·ior·age
    /ˈsānyərij/
    noun
    profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.
    HISTORICAL
    the Crown’s right to a percentage on bullion brought to a mint for coining.
    HISTORICAL
    a thing claimed by a sovereign or feudal superior as a prerogative.
    plural noun: seigniorages; plural noun: seignorages

  25. Paul Morphy says:

    All governments are taking on more and more sovereign debt.
    However governments are doing so in the name of their citizens. This begs the question, are citizens aware of what their own government is doing in their name with regard to debt? And if they do know they even care?

    At some point all of this debt will be call to be paid and it willonly be at that point when citizens will finally realise what their government has done in their name.

  26. Khowdung Flunghi says:

    Hum, $29.7 trillion dollars…how much is that in assignats?

  27. Chris Herbert says:

    The only question then is whether the spending was excessive in relation to the productive capacity of the nations and it would be far fetched to conclude that it was given the state of these economies and the excess capacity that is rife. The question then is what would happen if the central banks around the world just wrote off all their holdings of government debt?

    Answer: Nothing much at all.

  28. Fed wants to open a RRPO line, by offering IOER (their balance sheet isn’t large enough?) and thereby funnel excess cash (1 1/2 Trillion on account) to the banks, who can turbocharge the stock rally. The incentive for banks to buy Treasuries (on margin??) and thereby recycle same paper to the Fed, converting it to cash seems obvious, (Bonds find an owner) while calling it a bank reserve and we all know how important those are.

    • Nathan Dumbrowski says:

      Amrbrose pinned the tail on the donkey!! Now get lost kid. Here is a lollipop. Nobody wants to see the truth in this room

  29. Old Codger says:

    BEWARE people, a ‘Big MAC’ in Venezuela costs 145,000 Bolivars today, and will cost 4 times that next year.

    …..and 10 times that the year after!

    So, lending money to the guvmint is a losing game as what they want is not the 2% inflation they are always talking about, but 222%+.

    On redemption your retirement savings will be CHICKEN FEED!

  30. Ron says:

    One word DEFAULT

  31. DR DOOM says:

    Print more. Keep printing till they are no buyers. If 10T or 20T or 27.9T does not matter then how about 50T. It’s not as if there is a plan operating other than asset inflation so let the money printer go Brrrrrrrrrrrrrrr……. No one can answer what is too much. All they can do is beat their gums together.It does not matter cause you can not put a number on it.

  32. K says:

    I wonder how the ultra-rich are handling this and to what extent the “Federal” Reserve is financing them (probably indirectly through its crony banksters, e.g., in the City of London) to manipulate the price of US treasuries. They might actually wind up losing money from this manipulation. I came across a documentary that is actually telling the truth in detail as to the manipulation that is going on, which many attorneys know is happening but cannot discuss legally.

    “The Spider’s Web: Britain’s Second Empire” is a remarkably courageous documentary that discusses how the ultra-rich, including banksters, are hiding their assets in foreign trusts and chains of entities, so they can buy politicians, control governments, and commit crimes with impunity. The estimate by someone in that documentary is that about $50 TRILLION is being hidden in the tax havens in the territories of the UK, which I think will be proven to be off by a factor of four to five, if an investigation is ever conducted.

    That is why those who are claimed to be the “richest,” publicly-known, “billionaires” in the media are not close to being the richest, at least compared to the fortunes of ultra-rich families that shun the spotlight. I wonder how they will jump now as to the US dollar. E.g., Ray Dalio has said that he believes that the Yuan will be the next reserve currency.

    I doubt that, because the CCP will not allow those ultra-rich, TRILLIONAIRES to proceed as they have and reportedly, many foreigners who created factories, etc., in China (each with a required CCP partner) have been paid off and told to go pound sand. Thus, the issue will be in what direction these persons take the US government: will they see a war as the next way to profit or will they try to set up some other nation as the most powerful nation and hold its reserve currency?

    So long as those TRILLIONAIRES fear the loss of US power and the protection that has been provided to their often-criminal activities, I suspect that the US dollar will remain a reserve currency. Most importantly, through their “Federal” Reserve, they have effectively stolen and continue to steal TRILLIONS from Americans.

    Will they be willing to give that up, unless they have a certainty that the CCP will allow them to also steal similar sums from the mainland, Chinese people? Solely for these reasons, it may be that the US can still safely print trillions more dollars to pay its debts without fear of losing its reserve status, because the CCP-controled Chinese banks already are controlled by their own criminal parasites: the CCP members.

    The TRILLIONAIRES control most of the wealth in the world economy, so they will not want to give up their ownership of the US and power over the economy so easily. See “Wall Street eyes China despite continued tensions with US” in the financialtimes.

    • K says:

      I was interrupted, so forgot to add:

      Wall Streeters are frequently only figureheads who pretend to be ultra-rich to invest the funds of the true trillionaires, but their continued willingness to invest in mainland China may indicate that a deal has been worked out. IF Dalio knows about this, that might be why he is predicting that the yuan will be the next world, reserve currency.

      However, the trillionaires do not share their secrets willingly, so I doubt that reports as to their future plans are accurate. The IMF alternative of SDRs seem cumbersome and less easily financially manipulated for the banksters’ profit.

      How would the “Federal” Reserve create the SDRs and funnel them to its banksters? Thus, I do not see how the ultra-rich will accept those as the world, reserve currency, unless out of sheer desperation.

    • K says:

      One final comment: when the Soviet Union was created, many communists reportedly married wealthy heiresses connected with finance. Presumably, the deal was to share power, like the marriages of kings and princesses from other countries.

      Could the CCP and the trillionaires/Wall Streeters have reached such family-alliances and thus be joined their power and control? That would explain why Wall Street seems to want to ignore the threats and threatening conduct of the CCP, e.g., threatening to invade Taiwan and threatening Japan.

  33. zorro says:

    Hmmm, Yup, just another way to store fiat currency.

  34. JK says:

    When you see this rising debt (unstoppable!), I see the idea behind BTC and a few other crytocurrancies. Not sure if the government will put some type of obstacle on BTC in the future, but somehow I don’t think so because corporate and financial leaders are investing in it and they control the puppets in Washington D.C. I own some BTC and few others (ETH and LTC) and what I like about them is with BTC and LTC there are limits of how much can be produced. Regarding gold and silver, I agree with Max Keiser (Kaiser Report on RT News) that the metals market is totally manipulated by financial markets. I think this concept of dollar is a joke. They say it’s backed by the full faith and credit of the US Government, but with what??? With money printing? If it was fractions of gold, then ok, but has there been a public audit of Fort Knox? Recently? I just don’t see good things in the future here. I read today that Senator Cruz was flying with family to warm Mexico. One day they will all be flying out leaving us with this mess to clean up.

    • eg says:

      It’s backed with guns — lots of guns. Oh, and police and prisons.

      Any more questions?

  35. Mike says:

    The borrowing binge has just started. According to this article https://www.washingtonpost.com/us-policy/2021/02/17/democrats-biden-recovery-package/, Biden is said to be considering a 2 to 4 Trillion dollar infrastructure package.
    Why not? Money grows on trees

  36. MaxProtein says:

    “This prosperity is precarious as far as it is real, and transitory in so far as it is fictitious.”
    -Walter bagehot, 1870

  37. Cashboy says:

    I don’t get it as a UK citizen.
    By Wolf’s figures, the UK has increased its US Treasuries by 14% in a year from $392 Bn to $447 Bn.
    What benefit has the UK from buying US Treasuries especially when you see that the GB Pound has increased in value against the US Dollar during that time?

    Saying that, I have been buying Gold for the last 4 weeks because it keeps falling and it still falls and nothing is being said about gold in the MSM.
    How can gold fall when Central Bank are printing money out of thin air; banks are insolvent; there are negative interest rates; and there is 200 times the amount of paper contracts for gold than actual gold?

    Then you see Bitcoin, an algorithm rising exponentially and being called the “electronic digital gold”. So called mining is like someone paying you to find the next prime number. This digital gold was really useful during the Texas power grid.

    • Wolf Richter says:

      Cashboy,

      The City of London is a global financial center, where a lot of money is being traded and kept, bigger than some of the other tax havens and financial centers on this list. It’s not the UK per se. It’s the financial center.

  38. Eastwind says:

    I think we passed Wazoo a good while back, and we’re not even in Kansas anymore.

  39. Cruiser says:

    Ultimately decades of monetary distortion and fiscal profligacy must resolved through long term destruction of financial wealth, via general price inflation with all the inevitable consequences no doubt. The loss of wealth will be suffered mostly in fixed rate assets, including those of short maturity, as inflation rages. Tangible assets offer refuge.

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