Who is really lending the U.S. all this money?

October 20, 2009  

The question we must all grapple with is what will happen when the Fed has completed its purchases.

Jon Harooni

Ravi Tanuku
The man the US has put in charge of marketing US debt to the Chinese is fittingly named, David Dollar. Mr. Dollar, addressing a group of economic policy makers at the World Economic Forum in China last month said, "The interest rate on long-term treasury bonds is at a very low level by historical standards." "That says that the market has confidence the U.S. will get the fiscal problem under control." While a sub 3.5% yield on the ten-year can be construed as a vote of confidence in the US, a deeper dive into the numbers tells a substantially different and troubling story.

In the last few years leading up to our financial crisis, foreign appetite has been strong for 3 types of securities: US Treasuries, US Agency bonds (i.e. bonds issued to fund Fannie Mae, Freddie Mac, etc.), and mortgage backed securities (MBS) (guaranteed...


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