Below is a piece of an article I found on noagendanews.com that discusses how the US Federal Reserve financed roughly 80% of US debt in 2009. This number is so high mainly because the US debt has grown substantially in 2009 and fewer countries are willing to service this debt for obvious reasons. But the real question is “Where does the Federal Reserve get the money from?”. The answer is “They make it out of thin air!”. Think about that for a while…
Provided the Fed actually reveals their true accounting practices it will be interesting to see where this money came from when bill HR 1207 is passed this year.
Here’s the problem that the U.S. Fed’s “exit” poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total – perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. Of course they purchased more 30-year Agency mortgages than Treasuries, but PIMCO and others sold them those mortgages and bought – you guessed it – Treasuries with the proceeds. The conclusion of this fairytale is that the government got to run up a 1.5 trillion dollar deficit, didn’t have to sell much of it to private investors, and lived happily ever – ever – well, not ever after, but certainly in 2009. Now, however, the Fed tells us that they’re “fed up,” or that they think the economy is strong enough for them to gracefully “exit,” or that they’re confident that private investors are capable of absorbing the balance. Not likely.
