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In the course of a longish blog post at Econoblog Angry Bear with a similar title I developed an interesting series of numbers that kind of turn the typical Austerian 'We are drowning our grandchildren in a sea of DEBT!!" narrative on its head. All links at the AB post:

Total Public Debt: $17.4 trillion
Intragovernmental Holdings: $4.9 trillion (including $2.8 trillion in Social Security Trust Funds
Debt Held by the Public: $12.5 trillion

Treasury holdings of the Feds SOMA (System Open Market Account): $2.2 trillion (along with another $1.6 trillion of Federally backed instruments)

Of Debt Held by the Public:
Treasury Bonds (20 or 30 year): $1.46 trillion
Treasury Notes (1-10 year): $8.03 trillion
Remainder in short term Bills and TIPS

Point of Interest no. 1: U.S. Long Term Debt, defined as instruments with more than 10 years is right at $1.5 trillion out of $17.4 trillion or 8.6% of the total. More points and the implications of this one under the Orange Crueller

Repeating a number:
Treasury Holdings of the Federal Reserve System Open Market Account (in large part the result of three rounds of Quantitative Easement, i.e. buying Federally backed instruments)
$2.2 trillion Bonds and Notes
$1.8 trillion Other
Bonds (20 and 30 years) and Notes (1 to 10 years) are included together under one tab showing all issues. But it is pretty easy to tell them apart by their rates and maturities. Obviously issues maturing 11+ years from now are Bonds, and rates above 6% are almost certainly the same issued before the 2008 crisis.

Running down the column that reports Coupon Rates and comparing it to the column % of Total Outstanding we see that for Bonds maturing from 2018 on the Fed's share of the issues outstanding range from 58% up to an apparent self-imposed ceiling of 70%. If for the current purposes we split the difference we can conclude that the Federal Reserve holds just under 2/3rds of ALL Long Term Debt or 64% of $1.46 trillion = $934 billion. In turn this means that all non-U.S. government actors combined hold in round figures $500 billion in such Debt. A lot yes but somewhere around 3% of the total $17.4 trillion the Austerians claim represents "mortgaging our children's future to the Chinese Central Bank".

Okay that is Principal. But how about Debt Service. Well another Treasury website gives us average interest rates as follows:
All Marketable: 2.007%
Notes: 1.808%
Bonds: 5.011%

But let us remember that the Feds hold up to 70% of those Bonds with a concentration on the older and higher Coupon Rate ones. And since the Fed rebates its profits to Treasury that means that the effective Coupon Rate on bonds held by non-Federal holders is even less than that 2.007% average of All Marketable. How much less would be hard to calculate but it certainly means that the U.S. is paying all such holders something less than the 2.0% Fed Inflation target. That is on average across all categories.

Well that is a blizzard of numbers. But what it does show that claims that we have sold our Grandchildren into Debt Servitude to the Chinese are a bunch of hooey. While it is true that Foreign Holders of U.S. Treasuries combine for $5.8 trillion (another number snowflake) they are only splitting with all U.S. bond investors outside the Fed a roughly $500 billion pot of long term debt. With all the rest of it in instruments carrying rates that are in Real Terms Zero in relation to the Feds Inflation target and negative in relation to what most people consider the 'natural' rate of inflation.

The various rounds of Quantitative Easing carried out by the Fed may not have jump started the economy quite in the way intended. But they sure as hell sopped up most of the pool of high-yield Long Bonds out there. Which fact has some interesting implications, but ones I am having a tough time getting my professional Economist friends discussing.

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Comment Preferences

  •  Tip Jar (14+ / 0-)

    SocSec dot.Defender at - founder DK Social Security Defenders Group

    by Bruce Webb on Mon May 12, 2014 at 02:21:28 PM PDT

  •  Thanks. Had not focussed on the interest (4+ / 0-)

    rate breakdown before. This really does put the debt hysteria in even better context.

    Further, affiant sayeth not. 53959

    by Gary Norton on Mon May 12, 2014 at 02:30:36 PM PDT

    •  Thanks Gary, And another question (6+ / 0-)

      We apparently have a pool of around $500 billion in U.S. Long Term debt still "in the market". But a certain amount of that HAS to be effectively tied up as reserves by Central Banks worldwide as well as Fed Regional and Member Banks here at home. And a certain amount more for portfolio balancing purposes and for 'Flight to Safety' among foreign billionaires.

      That is one tactic of the Austerian panicmongers is to ask what would happen if everyone just dumped their holdings of U.S. long bonds all at once. Well right now the Federal Reserve, even though tapering QE is still buying in excess of $50 billion in various federally backed securities a year. So if there really is the prospect of some panic among holders of the Long Bond dying to get rid of remaining holdings of instruments paying 6-8.5% coupon rates we seem to have a willing buyer.

      In 2000 Greenspan testified to Congress about the danger of a disappearing Long Bond. Maybe he was mostly carrying water for the Tax Cutters that would come with a Bush Administration but at the time he had a real world point: There is some minimum amount of Long Term Treasuries needed just to keep the world economy stable, not least to serve as the ultimate Flight to Safety instrument for foreign plutocrats. And also to serve as a store of interest earning wealth, often in tax havens, for U.S. billionaires. AND to use as a mechanism of exchange for a world where many major commodities including Oil are still denominated in dollars.

      Given all that the prospect of foreign holders of Treasuries simply dumping Long Bonds in a panic sale are beyond far-fetched. No matter what watchers of Beck's The Blaze or the fringier fringe of an already fringy set of Ron Paul backers might want to believe.

      SocSec dot.Defender at - founder DK Social Security Defenders Group

      by Bruce Webb on Mon May 12, 2014 at 03:17:14 PM PDT

      [ Parent ]

  •  It appears to me that the Chinese are forced to (3+ / 0-)
    Recommended by:
    Roger Fox, virginislandsguy, whaddaya

    buy Treasuries to support their US Dollar peg - rather than to profit from them.  Anyway, you show why the appetite for Treasuries is still seemingly insatiable.

    "The way to see by faith is to shut the eye of reason." - Thomas Paine

    by shrike on Mon May 12, 2014 at 03:06:55 PM PDT

    •  Doesn't appear they are net buyers (2+ / 0-)
      Recommended by:
      207wickedgood, Odysseus

      Major Holders of Foreign Treasuries

      This particular publication only goes back a year at a time but I have reviewed it before and mostly the Chinese are pretty steady state in their holdings at the $1.2 trillion mark and have been for some years now.

      On the other hand this document tells a little different story. But doesn't seem to have hard numbers on actual holdings of Treasuries. That is China may be building its Foreign Reserves but doesn't on my reading seem to be doing that through Treasuries as such.

      But I am more asking questions with this post than laying down the law. I wasn't kidding that I have been asking my Economist friends about this for some time now.

      SocSec dot.Defender at - founder DK Social Security Defenders Group

      by Bruce Webb on Mon May 12, 2014 at 05:20:16 PM PDT

      [ Parent ]

  •  I thought the QE was spent on buying Fanni Freddie (0+ / 0-)

    securities and newly issued bonds? Are you saying some of the QE was spent buying up older bonds?

    •  I believe QE 1 and 2 (0+ / 0-)

      were mostly Treasuries. And I wasn't aware that any of it was used to buy newly issued bonds. I wouldn't see what the point of that would be. But I might be wrong on the second point.

      Certainly QE3 is mostly buying Fannie and Freddie, maybe because the Fed already bought as much of the existing particular issues of long bond as seemed prudent. (They seem to be adhering to a 70% of issue limit).

      SocSec dot.Defender at - founder DK Social Security Defenders Group

      by Bruce Webb on Mon May 12, 2014 at 04:56:19 PM PDT

      [ Parent ]

      •  Found a timeline (3+ / 0-)

        A short history of QE and the market
        Looks like the initial round was Fannie and Freddie (2008) , the second round Treasury purchases (2009), the third and fourth rounds 'Operation Twist' where the Fed sold short and bought Long bonds. And then until 2012 when they were buying Long bonds straight out.

        What we do know is that the current total portfolio is $4 trillion with $2.2 trillion of Notes and Bonds vs $1.8 trillion of other Agency instruments including Fannie and Freddie.

        SocSec dot.Defender at - founder DK Social Security Defenders Group

        by Bruce Webb on Mon May 12, 2014 at 05:05:12 PM PDT

        [ Parent ]

  •  I have seen numbers that indicate (0+ / 0-)

    that the public bailed out of bond funds in great numbers, with PIMCO, one of the leading bond funds, losing a lot of business. The switch out may explain the current stock market rosiness, as people switched from lower yields to higher yields. But will this result in a bubble in the stock market, leading to another financial hangover?

  •  Fed buying old exspenive debt? (0+ / 0-)

    Your article may have already answered this, but I just can't tell.

    Specifically: I've been wondering for some time why the Fed through it's QE program didn't buy up old dept with much higher costs to borrow rates. Thinking, getting that expensive money bought up with much less expensive money could do real and permanent good. The cost to service that debt was in the many millions.

    Are you saying that this is in fact just what the Fed did?

    I sure hope so.

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