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US Government Plans to Borrow Another $425 Billion in the Last Quarter of 2018

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The US Treasury plans to borrow another $425 billion in the final quarter of 2018, bringing total borrowing for the year to $1.34 trillion, according to a Treasury Department press release.

The 2018 borrowing level is expected to more than double 2017’s number.

These numbers represent the Treasury’s estimates of “privately-held net marketable borrowing” — essentially the amount of Treasury bonds sold by the US government. The numbers do not include rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserve’s System Open Market Account (SOMA).

According to the Treasury Department, it will continue the torrid borrowing pace in the first quarter of 2019. The department projects it will borrow another $356 billion.

During the July – September 2018 quarter (Q2), the Treasury borrowed $353 billion in privately-held net marketable debt. That came in about $56 billion higher than projected.

All of this borrowing is necessary as the government keeps running up massive budget deficits. The 2018 fiscal year ended Sept. 30 and the US government closed out the year with its largest budget deficit since 2012. Uncle Sam ended 2018 $779 billion in the red, adding to the ballooning national debt.

Although the economy is supposedly enjoying a boom, US government borrowing looks more like we’re in the midst of a deep recession. Long-term US debt sales have risen to a level not seen since the height of the financial crisis.

As the Treasury Department continues to dump bonds into the market, it will likely push interest rates higher. Bond prices will have to continue to fall, with yields going up, in order to entice investors to buy all of these Treasuries.

Currently, the biggest buyers of US debt aren’t in a buying mood. In fact, they’re selling bonds as well.

According to the most recent Treasury Department data, China’s holdings of US Treasuries fell for the third consecutive month in August. The Chinese shed another $6 billion in US debt, dropping its total holdings to $1.165 trillion. Over the last year, China’s holdings of Treasury bonds fell by $37 billion year-on-year.

Meanwhile, the Japanese sold off $5.6 billion of Treasuries in August and shed $72 billion between August 2017 and August 2018. Japan now holds about $1.03 trillion in US debt. That’s down $210 billion from its 2014 peak.

Over the last decade, the US government could always count on the Federal Reserve to buy its paper if nobody else would. The central bank gobbled up billions of dollars in US debt through its quantitative easing program in the wake of the 2008 crash. But now the Fed is tightening. The Federal Reserve shed $152 billion through the end of August as part of its QE unwind. It now holds $2.294 trillion in US debt.

So, the three biggest buyers of US Treasuries aren’t buying. No wonder bond yields (i.e. interest rates) continue to go up. In fact, earlier this month, the 10-year US Treasury yield hit the highest level since 2011. This is not good news in an economy built on piles of debt.

The skyrocketing levels of US government debt stem from lower revenues due to tax cuts and increased spending levels. While we love tax relief, it doesn’t really help us in the long run without some government relief. GOP apologists promise we don’t have to worry.  The economy will grow its way out of the debt problem. But as we’ve reported, government debt retards economic growth.

Economist Chris Edwards said the debt should have everybody worried, but policymakers seem to be in la-la land, a “euphoric dreamlike mental state detached from the harsher realities of life.”

They dream about spending on their favorite programs and act as if there won’t be harsh consequences to their profligacy. But there will be. Future living standards are being eroded as huge costs are being pushed forward, and the rising debt will eventually spark a damaging financial and economic crisis.”

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