GOVERNMENT BUYS ITS OWN DEBT
By Jon Christian Ryter
May 18, 2011
Exceeds the debt ceiling
Federal Reserve Chairman Ben Bernanke, flaunting his nose at Congress, told the Senate Banking Committee on Thursday, May 12, that Congress needed to raise the cap on US government borrowing, adding that a failure to do so could take the United States government down the same path that led to the collapse of Lehman Brothers. Bernanke insisted that catastrophic consequences lay in store for the country if Congress failed to heed his warning. Bernanke said, “The worst outcome would be one in which the financial system would again be destabilized…[and it would have]…extremely dire consequences for the rest of the economy,” adding that “…using the debt ceiling as a bargaining chip is quite risky.”
Bernanke is looking for a “pass.” The current $14.294 trillion cap on the debt was within 10% of failsafe on Tuesday, May 10, or $14 billion shy of the limit cap. The problem arises with the bond auction. The US Treasury offered $72 billion in 10-year debt bonds at this month’s auction. They fell short, selling only $24,000,044,200.00—or about $10 billion over the debt limit. While Bloomberg reported that a drop in commodities prices fueled a demand for 10-year Treasuries, the Wall Street Journal reported that the Treasury 10-year bonds sinks from a poor auction, rekindling fears of inflation. CNN noted that the fall of the 10-year Treasuries impacted the sale of 30-year Treasuries.
The government offered $38 billion in 30 year Treasuries, but only sold $16,000,003500.00. Okay…let’s do the math The US Treasury sold $24,000,044,300.00 in 10-year Treasuries; and then sold $16,000,003,500.00 in 30-year Treasuries, or a total of $40,000,047,700.00 in Treasury bonds during the most recent auction. What just happened? Bernanke just gave the federal government some wiggle room—$26,000,047,700.00 in wiggle room to be exact. The problem is, the biggest buyer of US Treasuries today is…you guessed it…the federal government. They are currently buying at least 52% of all the Treasuries offered at auction.