Our entire monetary system, and by extension our economy, is a Ponzi economy in the sense that it really only operates well when in expansion mode. Even a slight regression triggers massive panics and disruptions that seem wholly inconsistent with the relative change, unless one understands that expansion is more or less a requirement of our type of monetary and economic system. Without expansion, the system first labors and then destroys wealth far our of proportion to the decline itself.
I thought that the U.S. would turn into a Japan-style economy, where Americans now more inclined to saving, would buy as many treasuries as needed to finance ever growing budget deficits. In his NY Times op-ed, Warren Buffet says that it would not be enough.
Out of the $1.8 trillion treasuries to be issued, Americans will only purchase at most $500 billion. Another $400 billion will maybe be bought by foreigners (mainly export-driven economies like China and the Middle East states, assuming that they keep buying). The rest, a staggering $900 billion, will be purchased by the Fed, i.e. freshly minted dollars.
Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.
Yesterday the Fed announced that they are going to print an additional $1.15 trillion, divided up as follows:
- $750 billion to purchase agency mortgage-backed securities
- $100 billion to purchase agency debt
- $300 billion to purchase longer-term Treasury securities
But just how much is a trillion dollar?
To put that amount of paper dollars in perspective, $1.15 trillion is roughly equal to:
- the yearly GDP of Mexico or Australia
- the amount of US treasuries held by China
- the external debt of about 150 countries in the world
Furthermore, compared to other world figures, $1.15 trillion would be equal to:
- 8.3% of nominal US GDP
- 10.4% of total US public debt
- 32% of non-G8 (or 194 countries) total external debt
- ~50% of the Italian total public debt (which stands at 105.8% of GDP)
- 12 times the sovereign external debt Argentina defaulted on in 2002
- 29 times the debt cancellation owed by Third-World countries to the World Bank in 2005
Sources:
Rank Order by External Debt, The CIA World Factbook
Third World Debt, Wikipedia
Finanza pubblica, fabbisogno e debito (pdf), Central Bank of Italy
List of countries of GDP, Wikipedia
China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries, New York Times
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