C'mon...the developing US Gov't Debt Bubble?

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Nichoman's picture
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
C'mon...the developing US Gov't Debt Bubble?

Is the emperor wearing any clothes?  If not, and its doing the below...isn't our fate sealed?

Below...post from Nathan's Economic Edge.




 Bond and dollar futures are both higher. Higher during a week that they are issuing $235 billion??? Now here’s my question… how do we finance $235 billion of bond auctions in one week – WHERE DOES THE MONEY COME FROM? Well, if we look at the bid results, we find that the Primary Dealers (PDs) are doing more and more buying each week. And when we look at the TIC data, we find that international buyers are doing more selling than buying. So, if the money to buy such massive issuances is coming from the PDs, then they have to be using their own cash or equivalents to buy them – correct?

So, let’s go and look at the balance sheets of the biggest Primary Dealers and see how much cash they possess… Let’s start with JPM. Here’s their balance sheet from their 2008 Annual Report, page 131:

It shows roughly $27 billion in immediate cash.

Now let’s look at the balance sheet of Goldman Sachs:

Here we find $35.4 billion of cash and cash equivalents. Hmmm… Okay, let’s say that the 5 biggest each have that amount – 5 times 35.4 = $177 billion. Of course they can’t place 100% of their cash and equivalents in long term bonds, so I would assume that only a fraction of that money would actually be available to buy at auctions. Of course there are their "trading assets" which we have no idea how they are used. But my premise is that week after week of $100 billion or now $200+ billion auctions cannot be supported by the money that the Primary Dealers possess.

So again, WHERE’S THE MONEY COMING FROM? Since I can’t see where the money is coming from, I’m going to throw a wild guess out there and say that the government and PDs are simply printing it as they go! How much? WAY, WAY more than the announced use of Bernanke’s $300 billion. Sound like a conspiracy theory? It is, and I invite the Fed, the Treasury, and the Primary Dealers to open their books and prove me wrong. I want to see a paper trail leading to the purchase of those bonds and treasuries!

This is a vitally important question to have answered for the future of our country – CRITICAL.

Ready's picture
Status: Platinum Member (Offline)
Joined: Dec 30 2008
Posts: 917
Re: C'mon...the developing US Gov't Debt Bubble?

Nice find. I agree with the analysis 100%.

We are on target at current rates to sell $12T in Treasury debt this year. How long can we sustain this?


JAG's picture
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: C'mon...the developing US Gov't Debt Bubble?

 I read Nate's commentary this morning also. It makes you think that our financial system did collapse last fall and the Fed is trying to cover it up. Its like a teenager that loses his job and starts using the credit card in an attempt to hide his unemployment from his parents. Sooner or later, that credit card bill is going to show up in the mail. Maybe our government/Fed needs a spanking.

kmaher's picture
Status: Bronze Member (Offline)
Joined: Feb 5 2009
Posts: 84
Re: C'mon...the developing US Gov't Debt Bubble?

After the reaction that the Fed's first foray into QE received, especially from China, I don't think that they will do so explicitly again.  They still won't be able to hide their tracks forever.

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