This article was spotted and passed along by Ms. K.M., and it's in that "gimongous whopper doozie" category, and definitely one for all the financial sleuths out there. As one might imagine, I have my own high octane suspicions and speculations to offer, but first, the article. Nose to the ground, get ready, sniff:
The article begins by asking the $64,000,000,000,000,000 - allowing for missing money, inflation, and lots of derivatives - question (and yes, I know that $64,000,000,000,000,000 is way more than the mere pocket change of $17,000,000,000,000,000 in derivatives that's been reported. But I'm allowing for (1) their penchant for non-stop lying (2) consistent fraud, (3) a repertoire of accounting tricks rivaling the processes of "renormalization" in physics, and (4), just as in physics, a stubborn adherence to "the model" and its cooked books, even though the cooked books are telling them there's something wrong with the model. Of course, that could be due to all the physicists that went into Wall Street and hatched the golden egg of "econophysics" and taught all those traders a thing or two about accounting tricks and cooking books... But I digress. Where was I?)
The article begins by asking the $64,000,000,000,000,000 question and modeling the circumstances behind that question:
Today's question: Who buys and holds America's federal debt?
To begin, the chart below shows the growth of US debt (split between public marketable debt and non-marketable Intra-Governmental holdings) and Federal Funds rate since 1970. Public marketable debt is skyrocketing while debt held by Intra-Governmental trust funds continues slowing.
Hereupon follows a couple of helpful graphs, and then more commentary:
But thanks to the quarterly publication of the Treasury Bulletin, the Treasury roughly details the changing ownership of US Treasury bonds in four buckets; the Federal Reserve, Intra-Governmental surplus trust funds, foreign held, and domestically held.
Below, which of those four buyers bought and held all that debt from 2009 through 2014 (blue columns) versus 2015 through 2018 (green columns). The changing buyer types before, during, and post QE are quite radical.
Radical you say? what's so radical about this? Well after more breakdowns of who is buying what, we get this handy summary:
This means the domestic public has been left to purchase an unprecedented $3.2 trillion, or 84% of all issuance since QE ended.
Yup. You read that correctly, gentle reader: the numbers are saying that John and Susy Q. Public rushed right out to buy bonds when quantitative easing ended. Yes... I remember it well, the long lines, the endless waits to take home my bonds and coupons.
But wait, there's more! This massive figure also represents "other investors", and who might those be?
"Other Investors" vaguely includes:
- GSE's (government-sponsored enterprises; Freddie Mac, Fannie Mae, Ginnie Mae, etc.)
- Brokers / Dealers
- Bank Personal Trusts and Estates
- Corporate and Non-Corporate Businesses
- and yes, somehow the category titled "other investors" wasn't vague enough...even among the heading of "other investors" comes the bullet point of "other investors" which seems wide open to interpretation
All this can be seen in the Treasury Bulletin December 2018, page 51...Table OFS-2 Estimated Ownership of US Treasury SecuritiesSource; Office of Debt Management, Office of the Under Secretary of Domestic Finance.
Yes, that's right, under the heading of "Other Investors" there is a sub-category of "Other Investors"; call them "Other Investors, Squared." But wait, it gets even more fun, and here, I just have to cite the Zero Hedge article at length, because not even Hjalmar Schacht could come up with a convincing explanation for this one (or, maybe he could, but we'll get back to that):
Finally, perhaps the biggest question of all is who is buying all the middle and longer dated issuance? As QE was officially completing its taper in September of 2014, the spread between the 2-10yr and 2-30yr was 200 to 275 basis points, respectively. Simply put, the 2yr offered just 22% of the return of the 10yr and a 1yr offering less than 5% of the 10yr. If one wanted yield, one had to buy the longer dated issuance and could use significant leverage to take advantage of the fat spread.
However, by mid 2018, the spread of the 2-10 and 2-30 had plunged to just 30 and 45 basis points...and now on even the 1 year vs. 10 year is just 8 and 44 basis points. Heck, the 1 year is now offering 97% of the 10 year yield at just 10% the duration....and even a 1 month bill gets you within 21 basis points of the 10 year (offering 92% of the yield for less than 1% of the duration?!?).
Given this, only a buyer without profit motive would use leverage to borrow short to buy long dated debt with a negative return assured. (All emphases added)
Let that one sink in for a moment: "only a buyer without profit motive would use leverage to borrow short to buy long...with a negative return assured." So who could that be? Well, one possibility is that Johnny and Susy Q. Public felt such a surge of patriotism and noblesse oblige for the befuddled, struggling banksters, that they wanted to lend a helping hand, and mortgaged their, their children's, and their children's children's future and rushed out to stand in line for their bonds and coupons. If you believe that, I have a few suspension bridges for sale, cheap, which I'll be happy to finance with gold-backed bearer bonds (I'll meet you at the border of Switzerland and Italy, and I'll be carrying those bonds in a false bottom in my briefcase. Don't worry about the fact that those bonds are in denominations that supposedly never existed, or that they contain little spelling errors and so on. That's how we know they're authentic). All this is to that that it leaves a very different party and possibility which we'll get back to in our high octane speculation of the day. But Zero Hedge sees the same difficulty and implication that I do, and that by now, you probably do too, and here it is:
So, the Fed isn't buying and has in fact rolled off a massive quantity of mid duration US debt, foreigners aren't buying, banks aren't buying, insurers aren't buying, American's aren't buying savings bonds, state nor local governments are buying, and there is little to no spread to compensate any leveraged "investors" to buy mid to longer duration US debt. Yet the Treasury tells us that "other investors" (suddenly became hyper-interested just as QE ended) and have come up with over $3 trillion in cash since 2015 to buy low yielding US debt like never before?!?
Is there any party (aside from central banks or central bank conduits) that could come up with such gargantuan quantities of dollars to yield so little and do it essentially without leverage??? Tell me again, who buys US Treasury's...and particularly who buys mid and longer duration US debt (responsible for setting the 30yr mortgage rate)??? Otherwise, this may sadly be the smoking gun of an active, accelerating, and perhaps unraveling Ponzi scheme?
Yes, it certainly could be the harbinger of a rapidly unraveling Ponzi scheme. Or it could be something else entirely; it could be yet another indicator that my long-ago hypothesized "hidden system of finance" is so awash in money, that it is buying up that debt for one reason, and, as Zero Hedge has intimated, that reason is not profit, which leaves only one other: leverage, influence, control, and power. I'm reminded of Dr. Tatyana Koriagina's article in Pravda shortly before 9/11, that the US would be attacked on its own soil by a powerful internationalist group of people with assets in excess of $300 trillion. In other words, the "other investors, squared" would be the sort of people with enough money to throw around, to buy lots of sophisticated technology, the kind that can pulverize buildings, burn down houses leaving surrounding forest intact, that sort of thing. Or to put it differently, that post-war hidden system of finance, and the players in it, are gobbling up more and more of the open public system. And, as Zero Hedge intimates, that could mean that the inherently fraudulent nature of that system could also be unraveling quickly. After all, why else would you now want to take the entire federal budget black?
Or to put all this high octane speculation "country simple," what we're looking at, I believe, is a bit of confirmation that there was and is such a hidden system of finance.
And it's now beginning to eat up everything.
See you on the flip side...