Despite Declining Deficit, Foreigners Arent Bailing Us Out, So the Fed Will Keep QE Going - Bud Conrad
Bud Conrad, Chief Economist – Casey Research
GoldSeek.com
The basic imbalance driving our economy is the government deficit, which spun out of control as a result of the Credit Crisis of 2008/9. But the sequester, improving tax base, lower interest rate, and elimination of stimulus spending have caused the big government deficit, while still extreme, to drop to half its previously nosebleed levels.
Even so, the deficits remain well out of proportion for a sustainable future. Projections for future government expenditures, including those related to the masses of retiring baby boomers, are on track to increase exponentially. Especially given that the deficits are actually much worse than generally discussed. Honest accounting would include the growing liabilities for retirees in the current accruals, resulting in deficits running closer to $5 trillion per year.
Foreigners recycling their trade surpluses have been an important source of purchases for US government debt. As you can see from the chart of long-term securities purchases by foreigners, that buying collapsed during the crisis. And, interestingly, it has recently fallen sharply again.
Offsetting the reduction in purchases of US debt by foreigners, the Fed has stepped in with multiple quantitative easings (QE), buying government securities itself in order to add liquidity and drive interest rates down. The shift into an accommodative policy is easy to see in the big picture of the holdings of Treasuries at the Fed:
Simply, the loss of foreign enthusiasm for US government debt would normally be a red flag for our economy. This time around, the slack is being papered over by the Fed, which is creating money out of thin air in order to buy what is, in essence, most of the new debt being issued by the federal government. By filling the gap left by exiting foreigners, the Fed has been able to sustain low interest rates—for the time being.
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Whistler Blowers, Insiders
That’s a joke!!! How are foreigners suppose to bail the US out when 95% of the Earth receives aid from the US? If they had money to bail us out why would they be needing aid from the US?
The US foreign aid budget is $23 billion for this year. That’s couch cushion money for the government.
The deficit isn’t declining. Unfunded liabilities are still $5 trillion a year and the government is cooking the books.