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Who Is Buying All This US Government Debt?

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The national debt pushed above $26 trillion last week. In just a little over two months, the US government has added over $2 trillion to the debt. The budget deficit has already set an all-time record with four months left in the fiscal year. In April, the US Treasury sold $1.287 trillion in additional US debt.

So, who is buying all of this debt?

Foreign investors are actually shedding US Treasuries. According to the latest data, “foreign official” holders, including central banks and foreign private-sector investors, dumped $44 billion in US Treasury securities in April. China alone unloaded $19 billion in April.

US government funds dumped $91 billion in Treasuries in April. This includes the Social Security Trust Fund and pension funds for federal civilian employees and the military.

US commercial banks shed $51 billion in Treasuries from their holdings in April.

Other US entities including institutional investors, bond funds, pension funds, insurers, corporations and individuals took up some of the slack, buying $948 billion in Treasuries in April.

But who has been the biggest buyer over the last several months?

The Federal Reserve.

The central bank did most of its work in March, gobbling up $1.02 trillion in Treasuries. It slowed its pace in April, buying up a mere $526 billion in US bonds. That brought the 2-month total to $1.56 trillion. During that same time period, the US Treasury issued $1.56 trillion in Treasuries.

In other words, the Fed monetized 100% of the new federal debt accumulated in March and April.

Meanwhile, Federal Reserve Chair Jerome Powell insists the Fed isn’t monetizing the debt. During testimony before the Senate Committee on Banking, Housing, and Urban Affairs, Powell flatly denied the central bank is buying assets in order to facilitate the Treasury’s sale of debt. “That certainly is not our intention,” Powell said.

It wasn’t in any way about meeting Treasury supply and it continues not to be. We really don’t think about it.”

Powell then claimed that the demand for Treasuries remains “robust.”

But when you look at the actual numbers, the demand is only robust because the Fed is in the marketplace. It’s unfathomable how Powell could claim with a straight face that the Fed isn’t monetizing the debt even as it monetized 100% of the debt in March and April.

Granted, the central bank has slowed its purchases somewhat in May and June, and it appears the market for Treasuries is stable. But the US government continues to pile on debt at a staggering pace. The Trump administration just announced plans for a $1 trillion infrastructure bill.

As Peter Schiff pointed out in a recent podcast, all of the stimulus is ultimately monetary stimulus. Whatever is spent on infrastructure will have to be created by quantitative easing.

The government doesn’t have money that it doesn’t take. Any dollar that the government spends is a dollar that the private sector can’t spend or can’t invest. The government has to take money out of the economy before it can put it back in. Nobody seems to understand this basic point because they see the Fed creating money and they think, well, we just print money. They don’t realize that when they print money, they destroy the value of the money that’s already there. So, they’re not adding new purchasing power. They’re just redistributing it.”

The reality is the Fed is backstopping the borrowing. Were the Fed not in the marketplace, the federal government would find it impossible to sell all of these bonds. With no sign that spending will ever end, how will the Fed ever exit from these QE programs? This is why Peter calls it QE infinity.

The national debt is not going to stop growing faster than the economy. That’s just not going to happen. I mean, not until there’s a crisis to force it. But as long as we keep on going the way we’re going, the debt is always going to grow faster than the economy, which means the Fed is always going to have to monetize these bonds. So, I don’t even see where there’s ever going to be a point in time where the Fed can stop buying, because the minute the Fed stops buying, who is going to replace the Fed?”

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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