Seriously, does anyone honestly believe there is 2.7x the amount of money waiting to buy our debt as we are offering, at last count a $Trillion or two per year? The UK bought a couple hundred Billion in 2009-2010. And at the same time the Bank of England ‘bought’ 10 year UK ‘Gilts’ becasue they were out of money as well? It’s all sheer fantasy at this point.

And that’s my problem with it. Not that we’ll run out of money, or our financial system will be ‘destroyed’ or whatever they want to say on the %^$%$# News channel. It’s the sheer games the Gov’t plays to conceal and hide the true numbers. No one believes half the baloney figures the Gov’t issues. (I believe even less) But why do they persist in the illusion? I’ll tell you why, becasue the US$ is backed by nothing more than sheer faith. And to show ANY crack in that wall of faith would be deadly. Our politicians know it, and they’ll do anything they have to do to keep up the charade. They have to, they have no choice. And if widows and orphans pension plans get thrown under the Inflation bus then so be it. I have a problem with that, perhaps WC does not. That is your right. All I’m asking for is the truth.

I would like to remark, however, on the hilarious insertions of sidebar ads by whatever is the program that’s the medium for this blog. Earlier today, it screamed out “hyperinflation!!!”and provided a link to something (I didn’t pursue); more recently, it hyped “Sarah Palin!!” and something about her–I can’t remember what–but it seizes on some recognizable keywords and then vamps up the volume on that phrase like you wouldn’t believe!! It’s an entertaining sidebar.
Paul B. Eaglin
eaglin@alaska.com
Fairbanks

I agreed with most of your post except this part. That is the reason they are telling us and it is partially true. But the majority of the reason is becasue no one else is buying our debt, at least not in levels that we require at a rate we can afford. In a (truly) free market, there is always someone to buy someone elses debt – at a price – called the interest rate. But our Gov’t has a serious problem.

Our debt is so huge, and must turn over such vast quantities (relative to other nations) that we have to constantly sell huge tranches of debt. And when the rest of the World faces (real) inflation of 5-10% then simply buying our debt at 3.5% is a guaranteed loser. You’re better off investing your money, or even just spending a portion of it. Which is what the Chinese have been doing.

You can argue inflation or deflation all day long. But as someone who, personally, buys over $1M a year as a purchasing agent for a major company, I can tell you the Gov’ts stated rate of 3% inflation is pure BS. We have ‘effectively’ been at negative interest rates (where interest paid on deposits is LESS than inflation) for close to 3 years now. And since the Worlds’ commodities are mostly priced in USD, other countries are finally figuring this out as well.

Bottom line is – If our Gov’t had to sell its debt at ‘Market rate’ you can bet creditors would ask closer to 6% – enough to cover real inflation or at least close. This increase in interest expense would ADD apx. $300B to our deficit yearly. This is roughly the amount which could be collected by increasing the tax rate on the ‘richest’ 10% by nearly 50%! And remember, that’s JUST to maintain interest payments. This is the scale of the situation our Gov’t now faces.

By all historical standards in 2007 we should have gone into a deflationary spiral due to overcapacity and an aging demographic. But deflation is the Neutron bomb of financial calamity because it ruins all the income, and leaves the debt standing. Our Gov’t, as the World’s largest debtor, simply could not allow that to happen – a significant decrease in income combined with the ‘scheduled’ increases in entitlement payments requirements and they would no longer be able to pay interest on their debt and have to default sooner than later.

Some say, we’re there now – by our Gov’t being forced to buy our own debt. Whether it’s to keep the interest rate down to an ‘affordable’ level, or becasue they are the buyer of last resort, is immaterial in my accounting ledger. Either way our Gov’t has a massive problem and simply increases taxes on ‘wealthy’ individuals is not going to solve it.