Who Will Buy All Those Trillions of US Treasury's???

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Who Will Buy All Those Trillions of US Treasury's???

As of the latest Treasury update showing federal debt as of Wednesday, February 15...federal debt jumped by an additional $50 billion from the previous day to $20.76 trillion.  This is an increase of $266 billion essentially since the most recent debt ceiling passage.  Of course, this isn't helping the debt to GDP ratio at 105%.

The chart below shows the annual change in GDP minus the annual federal deficit incurred.  Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced.  The net difference is shown below from 1950 through 2017...plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits.  It is not a pretty picture and it isn't getting better. 

 

DYI:  The economy has run out gas when you take away its high octane debt boost all brought to by our – not so friendly – Federal Reserve with almost continuous QE.  Why did the Fed’s find it necessary to purchase so much government debt?  Simple here is the explanation from Econimica:

With the change to the Unified budget, effective as of 1969, the Social Security surplus was "unified" into the federal budget.  

 The government gave themselves a ready buyer for US debt while simultaneously allowing the SS surplus to be spent in "the present". 

Congressionally mandated to buy US debt, from 1970 to 2008, the Intra-Governmental Holdings (over half from the Social Security surplus) purchased over 45% of all federal debt issued.  This meant "only" 55% of US debt was auctioned into the market, or "marketable debt". 

But the annual SS surplus has declined by 90% (from over $200 billion a year at the peak in 2007 to perhaps $20 billion this year) and, according to the SS trust fund, the last surplus will be recorded in 2020 or 2021. 

After that (or essentially now), the Congressionally mandated buyer (which consumed almost half of all US federal debt for 4 decades) will cease.  Not only will the IG Holdings no longer be a buyer, they will need additional debt created to make good on those $2.9 trillion in SS "reserves"...and all the debt issued will be "marketable".

During the next economic downturn who will be the debt purchaser for our soaring deficits?  Our largest foreigner buyers have already scaled back due to ever increasing debt to GDP fearing either a debt default (unlikely) or monetization (highly likely).  Who else will purchase our chronic deficits whether during downturns or not [Social Security will be desperate for funds]?  Here is Econimica conclusion paragraph: 

This leaves the domestic public to purchase all the surging new issuance, plus the portion the Fed (and soon enough, the IG) is rolling off, and with little to no assistance from foreigners (even the possibility the strike turns into an outright selloff!?!).  The domestic public currently holds about $6 trillion in Treasury debt and will need to buy in excess of $1.5 trillion annually (indefinitely) between picking up the roll off and the new issuance.  If the public "willingly" do this at low interest rates, it will represent 7.5% of GDP going toward Treasury purchases that yield well below needed returns.  If the Public don't do this "willingly", interest rates will soar far more than shown above and the US will be overwhelmed by debt service.  The only other option is that the Federal Reserve makes a U-turn to re-start QE and openly engage in endless monetization.

 DYI