Living On Borrowed Money And Borrowed Time

How is the federal budget deficit being financed?  Who is willing to loan money to the U.S Treasury when we are $15 trillion in debt?  I thought that this chart from the Global Macro Monitor was interesting. It shows how this answer has changed with changing circumstances over the last 4 years.  It also provide perspective on how massive these borrowings have been.

In the first half of this year, the Federal Reserve through its QE2 program (by printing money), was almost the only buyer of federal debt.  As things deteriorated in Europe and the US markets in the third quarter of this year there was a massive flight to quality.  This brought in purchasers from rest of the world as well as scared U.S. investors looking for safety.

We are living on borrowed money and also borrowed time.  The Federal Reserve bailed us out of a train wreck with its QE2 program.  Just as that ended, Europe fell apart and provided another reprieve.

It is just a matter of time. It is not a question of if we are going to to go over the cliff, it is just a question of when.  Looking at the chart you can begin to imagine where interest rates would have to be right now to attract borrowers for our debt without QE2 and Europe.  This good fortune for America will not last forever.

There is a coming day of reckoning and we are doing nothing to prevent it.  There is an End Game in our future. The longer we wait to address our fiscal problems the more pain we will have to endure in the end.   At that time there will be many that will bemoan the way this game was played.

Blue= Other Domestic
Yellow=Federal Reserve
Red=Rest of theWorld
Purple Line=Fed Govt Borrowing