Something big happened over the summer, something very, very big. My guess is, however, you didn’t even hear about it. As a matter of fact, finding information about it has been nothing short of an extensive research project. The event (or non-event according to our informative media) was the Federal Reserve’s surpassing China as the largest holder of US Treasuries-a.k.a. national debt. This essentially means that the federal government is now the largest creditor of the federal government. Wait, what? Yes that’s right. It may sound more like the answer to a troll’s bridge crossing riddle, but it is actually a true and literal statement. As of Sept 28th the Federal Reserve’s balance sheet lists $1.665 trillion in US Treasury securities compared to runner up China’s at $1.1483 trillion. In layman’s terms, that means that the Federal Reserve now owns the largest portion of the total US public debt (which is about $10.3 trillion out of the whole $15 trillion pie). So we now owe most of the debt to ourselves. Sounds great, right!? A sleight of hand technique that allows us to spend way beyond our means!
Actually it sounds downright awful after some analysis of what this actually implies. The Fed’s historically large ownership of US debt really is the empirical proof of fiat currency’s destined failure that free market economists have been anticipating since it began. (for Fiat Currency and other terms you may not recognize, check out my past Fed blog that explains some of these concepts in more detail) This event boldly highlights the contention that a fiat currency controlled by bureaucrats and bankers is doomed to fail. If the fact that the Fed now owns a majority of the US debt is not proof of the failure of such a monetary system, I am afraid hyperinflation will only suffice.
This “owe ourselves” based system will allow the government to spend exponentially at the guaranteed credit of its monopoly bank, the Fed. There is now no denying the fact that the Federal Reserve is monetizing the US deficit (enabling it through massive monetary inflation). It has long been warned that this is happening, but the evidence has never been so bold. As long as the Central Bank prints dollars through purchasing US Treasuries they are enabling a limitless credit balance. If there is a guaranteed market for US Treasuries, there is no limit to the credit the Federal government can create for itself. I mention this practice’s serious implications in a bit more detail in a previous post. The severity of this, however, may have been understated. This rise in Fed owned debt is historic. The monetary base has been tripled and there is no signs of this stopping (signs of quite the opposite actually). The US Treasury sells debt for cash and its central bank is always there to guarantee a purchase. There is no check to this inflationary cycle and as it is gaining speed, it becomes ever more vicious.
Our monetary system has been completely controlled by unelected elite bankers with no regulation, natural or otherwise, guiding their policies since the end of the gold standard. The Feds only mandates are full employment and stable prices, both highly subjective terms that can never truly be enforced or controlled by the plans of men. They can and will continue to introduce more money to the system at the behest of the federal government and its cronies debasing the dollar’s value even beyond the 97% that they have already eroded. The total national debt just topped $15 trillion, I was just having discussions a few months ago about how it just topped 14. When will this end? Probably never as long as there is a printing press at the Fed. Remember just because it’s given fancy terms like “quantitative easing” or “Treasury holdings”, it is still counterfeiting. Just like the disastrous “out-of-thin air” printed greenbacks used to finance the Civil War, the Fed’s position as largest holder of US Debt represents fake government money. As of this September, the Fed has created an historic amount.