Washington Will Turn to the Bankers
To Finance U.S. Debt; T-Bills in Trouble
By Christopher J. Petherick
With foreign governments like China announcing they will be slowing their purchases of U.S. bonds this year, Washington is going to have to look even more to the banksters to pay its bills and finance its massive debt.
Across the globe, almost all of the industrialized nations are in serious financial trouble. Bogged down by high unemployment, huge debt and shrinking tax revenues, governments throughout Europe and Asia are struggling to stay afloat.
In the corporate world, businesses are suffering, too, and are preparing for the worst by paying down debt and staying as liquid as possible.
Last year was certainly no winner for U.S. bonds. New-York-based Bloomberg News reported that “treasuries were the worst performing sovereign debt market in 2009 as the U.S. sold $2.1 trillion of notes and bonds to fund extraordinary efforts to bolster the economy and financial markets.” Sovereign debt refers to securities that are issued by national governments.
The year ended on a sour note when institutional investors and foreign countries balked at a Treasury auction of long-term securities. On Dec. 9, the Treasury was barely able to sell $21 billion of 10-year notes. A leading international wire service attributed the lackluster demand to the “burgeoning U.S. national debt” making it “difficult to sell bonds as auction sizes have expanded this year to pay for bailouts of the financial sector and economic stimulus measures.”
Washington remains in denial about the situation. Officials are intent on continuing to prop up Wall Street. Almost 10 percent of the entire U.S. population is collecting unemployment benefits from the federal government.
And, now, Congress wants to hand the private health insurance industry a giant subsidy by forcing taxpayers to buy private insurance or face stiff penalties.
To do this, Washington is going to have to float an estimated $2.5 trillion in bonds to cover its outrageous spending in 2010. But who is going to buy these bonds at the current low rate on what is quickly becoming riskier debt?
A recent interview by Dr. Jeffrey Lewis, a medical doctor who is also the editor of the magazine Silver Coin Investor, has some insights on the government’s brewing financial woes.
“What is the solution?” asks Lewis. “The Fed will simply need to print more money.”
In 2010, says Lewis, the Federal Reserve will have to continue its “quantitative easing,” a fancy way of saying the Fed is going to turn on the printing presses and increase the money supply by pumping more dollars into circulation. Much of this will be used to buy up Treasury bills that no one else wants.
That’s why Washington will have to look to the banksters for its own bailout, which will surely come at significantly higher interest.
This will lead to even more inflation, he says, something that not even financial chicanery, which eliminates rising energy and food costs when calculating price increases, will be able to hide.
“The Fed will have to further its quantitative easing programs to keep the Treasury markets liquid,” says Lewis. “Should the Federal Reserve continue to print money to gap a shortfall in Treasury sales, the creation of $2 trillion would create inflation of 25 percent.”
With some estimates putting true inflation at 20 percent right now, a rise of 25 percent is not implausible as the value of the dollar continues to fall in real terms. At that point, economists will start to talk about hyperinflation, which is simply defined as a condition in which “prices increase rapidly as a currency loses its value.”
If Lewis is to be believed, it will not take much to push the U.S. dollar over the edge of the financial precipice on which it is currently balancing.
Can we expect this all to happen in 2010? Perhaps, says Lewis, but it may take longer for the fruit to ripen on the money tree. “As in all markets,” argues Lewis, “inflation will not come out of the woodwork for a period of months and possibly up to two years, but it will eventually reach the market.”
Christopher Petherick is a journalist and publisher based in Maryland. For more information, see his website at www.brandywinehouse.us or write directly to BRANDYWINE HOUSE BOOKS AND MEDIA, P.O. Box 638, Cheltenham, MD 20623. Petherick encourages all readers with Internet access to sign up for AFP’s free weekly email newsletter. It’s loaded with house news and special offers available only to newsletter recipients and AFP web site users.
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(Issue # 3, January 18, 2010)