Federal Reserve holdings of US treasuries now exceed China’s, with the Fed owning $1,108 billion and China owning $896 billion, according to data released last Thursday. Japan holds another $877 billion. By June, according to one analyst, the Fed will have accumulated $1,600 billion in treasury issues, a number likely to match China’s and Japan’s combined holdings. Just how did the Fed come to own all these securities?
The Fed’s hoard of Treasuries resulted primarily from QE1 and QE2.
QE1 began in 2008 with an announced purchase of $600 billion in assets; however, by March 2009 the amount was increased to $1.7 trillion of Treasury debt, mortgage-backed securities and debt backed by GSEs such as Fannie Mae and Freddie Mac.
Now, as the Fed liquidates some of the mortgages purchased under QE1, $30 billion a month is being poured into treasuries on top of QE2.
Under QE2, the Fed has indicated that it will buy $500 billion to $1 trillion in treasuries, at a pace of about $250 billion or so a quarter. Yet some economists forecast the Fed ultimately will buy $1.5 trillion to $2 trillion under QE2. (There’s no legal limit as to how much the Fed can buy.) Regardless, by June the Fed likely will have $1,600 billion in US treasuries, topping the combined holdings of China and Japan.
This development was reported in the February 2, 2011 edition of Financial Times. Undoubtedly, it was reported in many other financial publications.
However, here is what the Times did not report and what most other Establishment media outlets are not likely to report: There is a vast difference between how China and Japan came to own their US treasuries and how the Fed came to own its hoard.
China and Japan came to own their US treasuries because both countries produced goods that Americans wanted to buy. The Fed came to own its hoard by simply turning on what Fed Head Ben Bernanke has called the “equivalent of an electronic printing press.”
The Fed did not have to produce anything tangible, anything with any intrinsic value. No goods were produced, no trade was done. The Fed simply created, via Bernanke’s electronic printing press, the dollars with which it bought – and is buying – massive quantities of US treasuries.
This is massive inflation—in its classic definition. In time, we will see massive price inflation.
Ben created these new fiat monies out of paper and ink and thin air (promise to pay backing only). Now, he is buying huge amounts of treasuries (government backed virtual debt) with these non-asset backed dollars. …add to this that no goods or services were produced or sold to generate these treasuries. End result: food prices,energy, and lower standard of living for the next decade as hyperinflation and finally deflation decimate what is remaining of America’s middle class…..two solitudes will exist….the very rich and politically powerful vs. the economic debt enslaved lower class sheeple….the founding fathers did not have this in mind when they wrote and enacted the constitution….the seizure of the American political system by the big banks was envisioned by said writers of the constitution and they warned that it would lead to the destruction of this fine old republic….let us hope that the American public realizes this and forces the U.S government to change fiscal and social policies! For the betterment of all!
If it has become so easy to simply magically produce virtual money, how much longer will China and Japan continue to hold debt which is being diluted at such a pace? Since we are worth no more in product than we were 5 years ago, but their share of our debt has shrunk from one third to one fourth, it would appear to me they are losing about 30% on the treasuries, instead of earning interest. When they call this debt in, do we just print a trillion and pay them off?
Technically, you are right. Because the dollar is not redeemable in gold or silver, China’s and Japan’s holdings of US Treasuries are “calls” on goods, services and assets located in the US. With the “calls” being increased by Fed purchases of Treasuries, the Chinese and the Japanese are seeing their “calls” diminish in value.
But, in reality, the Chinese and the Japanese are being defrauded as their Treasuries are redeemable in fixed dollar amounts. With Fed creating new dollars to buy Treasuries, the value of dollars that someday will redeem those Treasuries will have significantly less purchasing power. The same is true for holders of any fixed-dollar investments, such as bonds, annuities, retirement plans, etc.
You ask, “When they call this debt in, do we just print a trillion and pay them off?” Yes, that is exactly what we will do, thereby inflating the world’s supply of dollars still more.
This approach to addressing the trade imbalance with China is being used because the American people are not expected to recognize and support rational policies that require self-restraint and patriotism in their own behaviors. The American people continue to shop for the lowest prices on everything at stores like Wal-mart, then complain their jobs are disappearing. They see no hypocrisy in this behavior. So the government responds, “well, if we have to allow the trade imbalance with China to get our consumers all this cheap crap, how do we then get the money back? Ahh, print more!”
They can’t really take on the trade imbalance directly so long as the American people are voting against that with their pocketbooks every day. Me personally, I shop locally. I pay more for things made in America, the closer to home the better. Even with that, some things I simply can’t get made in America anymore, because not enough of my fellow countrymen have supported those companies enough for them to stay in business.
What the fed is doing is wrong, but I see them no more guilty than the average Wal-mart shopper.
The Fed isn’t “buying” Treasuries to address the trade imbalance; it’s “buying” Treasuries to finance our ongoing — for as far as the eye can see — deficit spending. So far, the Fed has bought Treasuries to finance the federal deficit; when it has to finance some of the states’ deficits, monetary inflation will get even worse. The Fed many end up owning more Treasuries than all the other holders combined.
As for Wal-Mart shoppers being “guilty,” they’re just trying to survive in a country that taxes the hell out of them.
Please watch the documentary “The Money Masters.” It can be watched from this link from Google Video:
At the end of the video, you will come to one logical conclusion…The Federal Reserve MUST BE ABOLISHED!!!! The Federal Reserve is more dangerous to the United States than China could ever be. China is a scape goat. The problem is the Central Bankers controlled out of London. Please, Please, watch the documentary.
This post was incredibly revealing and really sad. Bud’s response was insightful and true. We are living in a dual wage economy where you work 7 days and get paid for 5. People can’t keep up, prices are inflating and the economy has just continued to get worse and worse.
We are seeing the end result of a government (federal, state, county, local) that believes in the redistribution of wealth, from the producers to politically favored sectors. There is simple not enough money earned to support everyone.
Ron Paul condemns it, citing not only social welfare but also corporate welfare. Additonally, we have a warfare economy where some Americans believe that every last dollar must be spent to maintain a military complex that spands the world. That we cannot afford such an expensive military never deters them from wanting to spend more. It’s coming to an end, a tragic end.