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Near-Record Treasury Issuance... But Who The Buyer Is May Surprise

Christopher Hamilton profile picture
Christopher Hamilton

I'd like to discuss the fourth quarter of 2008 versus the first quarter of 2018 - the two quarters in which the US undertook the greatest increases in federal debt but supposedly represent entirely different outcomes. (I'm excluding and smoothing out the Q3 2015 debt deluge after the Q1-Q2 debt ceiling debate.)

The chart below shows total federal debt (red line) in perspective against real inflation-adjusted GDP (blue line), the Federal Funds rate (shaded brown), and the 10-year Treasury yield (light blue shading). It ain't a pretty picture.

During Q4 of 2008, the US undertook $675 billion in federal debt, dropped the FFR essentially to zero, and saw the 10-year Treasury yield drop to 2.3%, while real GDP fell by over $200 billion.

During Q1 of 2018, the US similarly undertook $625 billion in federal debt. But conversely, in Q1, the FFR was hiked to 1.7%, the 10-year yield rose to 2.8%, and Q1 real GDP likely rose around $125 billion.

Since the completion of Q4 '08, federal debt has risen 97% (+$10.4 trillion), while real GDP has risen 19% (+$2.8 trillion). Over this period, federal debt has consistently been rising 4 times faster than inflation-adjusted economic activity... and as Q1 2018 highlighted, this trend isn't improving.

But looking at Q4 '08 and Q1 '18 Treasury holdings (side by side), something very strange has taken place. In late 2008, as the financial and economic wheels were coming off and assets were abandoned for the comparative "safety" of Treasurys, the domestic public added a then record $324 billion in US debt to their holdings. However, in early 2018, as the stock market and housing markets were reaching euphoric highs, somehow the same domestic sources added a mindblowing approx. $675 billion in Treasury debt to their asset hoard?!?

The chart below shows the

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Christopher Hamilton profile picture
No formal background.

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Comments (9)

Learner16 profile picture
Interesting article, thanks.
Salmo trutta profile picture
Nationalize the DFIs. Eliminate the remuneration of IBDDs. Raise reservable liabilities and reserve ratios, monetizing and sterilizing the debt. And gradually drive the DFIs out of the savings business. This will ameliorate the deficits, increasing overall incomes, the ingredient from which debt is paid.

-– Michel de Nostradame
IBDD - international business development divisions?
We have the military to thank for both the debt and the ability to force our financial will upon the rest of the planet.
cheefwiggums profile picture
Makes Bernie Madoff’s operation look like a lemonade stand.
Christopher Hamilton profile picture
I can prove nothing...I can only say when something doesn't smell right, look right, or simply add up...it probably isn't right. But a government can do as it pleases under the guise of national security. Harry Markopolis and most anyone else critically looking at Madoff knew it was fraud... but it went on and on right in plain sight.
Christopher Hamilton profile picture
I'd be glad to be proven wrong
Salmo trutta profile picture
@ Christopher Hamilton:

Keep up the excellent work.
you are saying that the last two or three trillion is just a computer entry something like the stuff at the Pentagon?
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