When Obama took office, the US Federal Government owed $6.3 trillion dollars to its creditors, and owed $4.3 trillion to its own trust funds, namely Social Security and Medicare, for a total of $10.3 trillion in governmental debt.

There are those who claim that Bill Clinton balanced the budget, but as I have blogged before, that is a misleading claim. Bill Clinton ran a deficit every year that he was in office, but what he did was rob the trust funds in order to pay for general expenditures. In other words, he “borrowed” all of the Social Security and Medicare Trust funds, leaving them with nothing but government IOUs. In all, the debt (to creditors and trust funds combined), the government borrowed $1.4 trillion.

The government under President Bush, with no money left to steal from the Trust funds, just continued to borrow money, to the point of borrowing an additional $4.8 trillion.

The government under Obama has made all of our previous Presidents look like amateurs. The government has “borrowed” $1.2 trillion from the Trust funds, and a whopping $7.2 trillion from creditors. Our total national debt stands at $19.7 trillion. By the time his term expires, Obama will have borrowed more money than all of the past presidents COMBINED.

That amount is even larger when you consider that the FED has monetized a significant amount of the debt. Monetization of the debt is when a central bank buys and then removes Treasury notes from circulation. The Fed has bought $2.1 Trillion in Treasury notes since Obama took office. What this means is that our real debt is closer to $22.1 trillion.

When the Federal Reserve purchases these Treasuries, it doesn’t have to print money to do so. It issues credit and puts the Treasuries on its balance sheet. Everyone treats the credit just like money, even though the Fed doesn’t actually print any cash. In other words, they are printing the money by issuing it on a computer screen. The U.S. government borrows when it auctions Treasuries. The Fed turns this debt into money by removing those Treasuries from circulation, essentially burning the loan documents and ensuring that they need not be repaid.

The Fed is using semantics in claiming that this is not a monetization of the debt, because they claim that monetization would require the central bank to never redeem the notes, and since they intend (someday, when the economy improves enough to allow it) to redeem the notes, then it isn’t technically monetization.

The effect of the Fed buying all of these treasury notes is that it suppresses interest rates, and increases the money supply, which makes money worth less and less as the amount in circulation increases. The only way to keep rates low is to continue to buy treasury notes, and refuse to sell. This means that the number of notes that have to be held will continue to grow. Add to this the amount that the government is borrowing, and you can see that we are awash in red ink, and trying to hide it by printing more and more money.

What this means to us is this: the Fed will have to buy more and more of these notes, and the government will continue to borrow more and more, until inflation and the amount of the debt becomes unsustainable. When we reach that point is unknown, because no other country has ever borrowed so much. What is known is this: every government that has tried this scheme has fallen, and the nation wound up in a disastrous war. Our days are numbered, there is just no telling what that number is.

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1 Comment

SiGraybeard · October 16, 2016 at 6:46 pm

As I like to say, it's not that bad. It's worse.

In setting the interest rates artificially low, the Fed has removed the information feedback on prices that an economy needs. Our economy now is completely broken; all sorts of malinvestments have happened because no one gets the feedback of what anything should actually cost. Debt is insanely high because with debt being free, a company can buy now instead of improving their business or their products. They can borrow money, buy back stock, pay bonuses or any other kind of spending they wouldn't do if there were real costs involved. If (when) interest rates rise, it's not just the fed.gov that will be in a world of hurt, businesses will. No one in the fed originally thought they'd have to keep rates this low this long, but now they appear trapped at zero.

The alternative to the disruption a return to real interest rates would cause is to keep rates low and just ride the economy until it collapses.

As you say, our days are numbered. We just don't get to see the number.

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