| | In all instances, the Fed as central bank is buying promises to pay in the future, as bonds. There -should- be a limit on the total amount of such credit in our economies. The difference is, with private entity bonds, there is at least some drag on the total amount of such future credit. Credit as notes through the banking system is ultimately throttled, in some sense, by the finite amount of available credit that private entities have(that is, unless conservative banking policies are forcefully replaced by social experiments in eliminating the concept of 'available credit,' only possible with government meddling at the point of a gun.)
With public bonds, especially US Gov't bonds, there is apparently no upper bounds on the total amount of such future credit. In fact, they just announced the limit as 'we will keep printing money until unemployment goes below 6.5%.'
Might as well say, "We will continue to push rope down hill until folks finally start to pull themselves up the hill." Only at this stage...they are pushing an increasing amount of their own rope down the hill at -themselves-.
The number one willing holder of US Govt debt in the past used to be the SS Trust Fund; no matter how willing, that willing debt holder is newly out of the debt holding market. As Congress and the POTUS continue to magically raise the debt ceiling bound by nothing but their whims, the reality of finding brand new willing debt holders -- at such low rates of interest -- is slapping them up the side of the head. And so, they will on an accelerated basis do the only thing they can do (because cutting the size of the federal Government is not in their universe): print US Bonds on a laser printer, sell them to the FED, and not only create money out of nothing, but pre-spend the wealth and toil and effort of endless people not even born yet.
They were in some way relying on the threat of the crisis to continue to avoid the crisis: -private- capital fleeing to the relative safety of bonds in order to hedge against the coming crisis. But now, desperate, the US Govt must rely on the FED to buy its bonds.
We are watching the death spiral of US Government finances.
The previous bad policy of QE was bad enough; flooding the banks with rope. But debt is primarily taken, not given. Folks of a certain kind must be anxious and willing to take on risk and run uphill and build the future economies, not simply borrow and spend. Simply flooding the economies with other people's money was not that incentive, in fact, it has been a massive dis-incentive to -those- people. But this new policy -- print Gov't bonds and give the new funny money directly to Congress and the POTUS to continue to spend -- is insanity squared.
We think this death spiral just can't get any worse. It can and will, and they show no signs at all of addressing the actual problem, because the actual problem is them and the massive overhead of the bloated carcass they are trying to pump borrowed breath into.
It might get better after it breaks and blows away, but not until then. It is incapable of fixing itself.
There are two kinds of consumers in our economies today: one group who obtains their spendable IOUs by working in the economies, taking on risk, and running uphill, and one group who obtains their spendable IOUs by running a printing press.
As the size of the latter grows, the burden on the former will increase until it is no longer bearable. A -tiny- amount of such parasitism is bearable; an infinite and unbounded amount is not. It will break, and the current death spiral is heading in only one direction.
(Edited by Fred Bartlett on 12/13, 5:29am)
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