In fiscal 2009, the U.S. government must find buyers for $2.041 trillion in new debt, three times as much debt as it issued last year.
Given the current state of the economy, it seems frighteningly apparent that a threefold increase in debt purchases by foreign buyers, mutual and pension funds and other usual investors is mathematically impossible.
“There is simply not enough money in the present economy to support a tripling bond issue in the normal course of business,” Sprott Asset Management head Eric Sprott wrote in a newsletter to clients. “As the lender of last resort, the only purchaser left is the Federal Reserve.”
In 2008, the Fed was a net seller of almost $300 billion of bonds, but in the first half of this fiscal year it’s buying almost $280 billion of bonds under a policy of “quantitative easing.” That means the Fed purchases assets, including Treasury and corporate bonds, using newly created money.
“The Federal Reserve’s ‘solution’ to the debt problem is the problem,” Sprott said. “It has resulted in the Federal Reserve doubling the monetary base of the United States over the span of a mere nine months.
“The future solvency of the United States as a nation state is currently in jeopardy. It is in far deeper trouble than the mainstream press cares to admit,” he said.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said the White House and Congress should negotiate a broad plan to reduce deficits now.
"Most anybody who's being honest knows we've reached a point where we've got a very dangerous fiscal situation, and it won't fix itself," MacGuineas told The Wall Street Journal.
© Newsmax. All rights reserved.