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http://www.financialsense.com/fsu/ed...2009/1105.html
Hedge fund analyst Jon Harooni and macro analyst Ravi Tanuku, in their article "Who Is Really Lending The U.S. All This Money?" (published in the hedge fund industry periodical Absolute Return + Alpha), track down what is actually happening, the real source of these funds.
Out of nearly $2.1 Trillion of net issuance across the Treasury, Agencies and MBS markets from June 2008-9, the Federal Reserve has accounted for nearly 40% of the total demand, buying more than every foreign government combined. It is also not a stretch to say the Fed has become the entire mortgage market; it has purchased nearly $500B of MBS securities during a period where there was only $350B issued. Looking at the first seven calendar months of 2009 yields similarly startling results: of the total $1.1 Trillion of net issuance across these markets, the Fed has purchased $861B or almost 80%. (bold emphasis mine)
http://www.absolutereturn-alpha.com/...his-money.html
The reason that the Federal Reserve has been taking these unprecedented steps on a massive scale is that given the huge amount of current United States government deficits, combined with the weak economy, the vast amount of spending for bailout, stimulus and so forth, there simply aren't enough buyers for all this debt. Moreover, in a true free market, investors would demand a far higher interest-rate level than what they're getting right now, if they were to continue to fund a government that is spending with neither restraint nor a credible source of funding for repayment. In a free market, we would expect those interest rates to keep rising until they are so attractive that actual investors buy up all the debt.
If this free market scenario were to happen, the US government budget deficit would skyrocket to a far higher level, because the US government would be paying higher interest rates on its borrowing (the missing free market link that is supposed to restrain governments). There would also be high pressure on housing markets, as mortgages became unaffordable. So the situation is that in order to fulfill its plans, the US government needs to borrow fantastic sums of money – but the lenders simply aren't there. As the only alternative, the Federal Reserve effectively creates the money out of thin air to fund the rest of the government.
Hedge fund analyst Jon Harooni and macro analyst Ravi Tanuku, in their article "Who Is Really Lending The U.S. All This Money?" (published in the hedge fund industry periodical Absolute Return + Alpha), track down what is actually happening, the real source of these funds.
Out of nearly $2.1 Trillion of net issuance across the Treasury, Agencies and MBS markets from June 2008-9, the Federal Reserve has accounted for nearly 40% of the total demand, buying more than every foreign government combined. It is also not a stretch to say the Fed has become the entire mortgage market; it has purchased nearly $500B of MBS securities during a period where there was only $350B issued. Looking at the first seven calendar months of 2009 yields similarly startling results: of the total $1.1 Trillion of net issuance across these markets, the Fed has purchased $861B or almost 80%. (bold emphasis mine)
http://www.absolutereturn-alpha.com/...his-money.html
The reason that the Federal Reserve has been taking these unprecedented steps on a massive scale is that given the huge amount of current United States government deficits, combined with the weak economy, the vast amount of spending for bailout, stimulus and so forth, there simply aren't enough buyers for all this debt. Moreover, in a true free market, investors would demand a far higher interest-rate level than what they're getting right now, if they were to continue to fund a government that is spending with neither restraint nor a credible source of funding for repayment. In a free market, we would expect those interest rates to keep rising until they are so attractive that actual investors buy up all the debt.
If this free market scenario were to happen, the US government budget deficit would skyrocket to a far higher level, because the US government would be paying higher interest rates on its borrowing (the missing free market link that is supposed to restrain governments). There would also be high pressure on housing markets, as mortgages became unaffordable. So the situation is that in order to fulfill its plans, the US government needs to borrow fantastic sums of money – but the lenders simply aren't there. As the only alternative, the Federal Reserve effectively creates the money out of thin air to fund the rest of the government.
] at a rate that is far above their tax revenue capability. Isn't this the "competitive devaluation" phase that many have been warning about for years?
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