Who is Going to Pay for the Seven Hundred Billion Dollar Stimulus? | Intermarket Analysis

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Who is Going to Pay for the Seven Hundred Billion Dollar Stimulus?

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by S. Wade Hansen

Bailouts and Economic Stimulus Packages are Expensive

One thing the financial crisis we are in has taught us is that government bailouts and economic stimulus packages are expensive. We used to think that numbers in the billions were expensive, but now we're talking about numbers in the trillions.

So where does all of this money come from anyway? It comes from the U.S. Treasury.

Where does the U.S. Treasury get it, you ask? It gets it by selling Treasury Securities—like Treasury Bills, Treasury Notes and Treasury Bonds.

To whom does the Treasury sell its Treasury Securities? That's where the TIC Data come in.

Who Is Buying Treasury Securities?

The problem is, in order for the Treasury to be able to sell its Treasury Securities, it has to find people to buy them.

According to past Treasury International Capital (TIC) Data, the principle buyers of Treasury Securities have been foreign governments—like those in Japan and China.

Unfortunately, it appears that foreign governments and other foreign buyers are becoming less and less interested in funding the U.S. Government by buying U.S. Treasuries.

Higher Interest Rates

If the TIC Data [click here to see the Latest TIC Data from the Treasury] continue to show that foreign investors are unwilling to buy U.S. Treasuries, the Treasury may be forced to increase the interest rates it is willing to pay on its Treasuries to entice investors to buy them.

Of course, higher interest rates are not exactly condusive with economic recovery, which could potentially put the Treasury and the Fed in quite a bind.

Keep your eye on the TIC Data to see if the Government is going to be able to fund its bailout plans.

Comments

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Redman - Economic Stimulus

|2009-01-15 07:21:43

Sorry if this is a stupid question, but why doesn't the treasury just print some
money to fund the bailout?

swadehansen - Printing Money

|2009-01-15 08:01:54

Redman, the Fed and the Treasury have, in fact, been creating (printing) a lot
of money as the Fed has expanded its balance sheet while buying up corporate
debt, treasuries, etc. The Fed has a lot of leeway in this regard.

However,
the Congress does not enjoy this same leeway when it comes to printing money.
They must operate according to statutes that don't allow them to just print
money.

Plus, issuing debt is a lot less scary to debt holders and other
governments than simply printing money is. The devaluation of the U.S. dollar
(USD) would be fast and swift if all the government did was turn on the presses.
Inflation would run rampant.

Carlos

|2009-01-16 02:32:09

Do you think that Taxes could be used to fund bailouts?

John Jagerson - Taxes and bailouts

|2009-01-16 02:39:34

Taxes will be used to fund bailouts. Ultimately the bailouts and other stimulus
measures will have to be funded with debt. The debt has to be serviced with
government income, most of which comes from taxes. Does that make sense?

I
would not anticipate that taxes would be raised immediately or anything since
you can fund deficit spending like this through debt easily.

swadehansen - Taxes

|2009-01-16 02:52:16

I agree with John. Pay for the bailouts with debt and pay off the debt with
increased taxes sometime in the future is how this is going to play out. Of
course, who is going to cut her/his political wrists to raise the
taxes?

Also, thanks for not referring to taxes the government collects as
"revenue." I hate that. Revenue implies the government earned the money
somehow. Income is much more accurate when referring to taxes received by the
government.

Moishe

|2009-01-16 02:57:54

the Congress does not enjoy this same leeway when it comes to printing
money.
They must operate according to statutes that don't allow them to just
print money.

Yes, only a private banking cartel such as the Federal Reserve
System has the right to create unlimited amounts of money and credit out of thin
air. Public institutions, i.e. the Treasury Dept. don't have that right.

John Jagerson - Re: Tribute to the overlords

|2009-01-16 02:59:04

Yeah I agree - LOL

However, consider Bill Clinton who both raised taxes and
cut spending for much of his career and was popular enough to win twice.

What is interesting to me about this discussion is the argument between
inflation and deflation. If the debt increases significantly it would be very
much in the interest of the government to drive inflation as a way to pay down
the debt. Will they be able to do that?

Moishe

|2009-01-16 03:02:15

Taxes will be used to fund bailouts. Ultimately the bailouts and other stimulus
measures will have to be funded with debt. The debt has to be serviced with
government income, most of which comes from taxes. Does that make sense?

It
sure does, John. In other words, the government has to borrow the money(at
interest) for the bailouts from private bankers who create the money out of
nothing. Then we the taxpayers get the privilege of servicing this debt to the
private bankers through our federal taxes.

Brilliant.

Moishe

|2009-01-16 03:06:05

Hey, can anyone tell me why our government has to borrow its money at interest
from private banks that create the money out of thin air, when in fact the
government has the Constitutional right to create its own money interest free
and debt free?

Thanks. ;-)

Moishe

|2009-01-16 03:10:48

Here's something else to consider. The Federal Government's debt, i.e. the
national debt, is NEVER actually paid off. It is simply rolled over with new
debt month after month, year after year. The only thing that is paid off is the
INTEREST on the debt. This is what your federal tax dollars are used for. Your
federal taxes are used to pay the interest on the debt that the Federal
Government owes to the private bankers who created the money out of thin air and
"loaned" it to the government.

Wow, that's great. Who came up with
this plan?

John Jagerson - Light a candle

|2009-01-16 03:47:40

Moishe,

Sounds like you already know the answers you want to hear for your
questions.

I figure there are two things that investors can do about issues
they don't like such as government intervention, fiat currencies or whatever. 1.
They can curse the darkness by moaning about it to everyone or 2. they can light
a candle by taking advantage of it.

If these ideas are so bad - take
advantage of them as a trader. If US debt and the dollar are doomed - short
them, maintain accounts in other denominations, buy gold, whatever but take some
action.

Moishe

|2009-01-16 03:58:42

Fiat money isn't the problem. The problem is that our money is created by
private banks through debt, with interest.

Why should we allow private banks
to create money out of thin air and lend it to us at interest, when the
Government itself(the Treasury Dept.) has the Constitutional authority to create
all the money we need out of thin air, interest free and debt free?

Why pay a
middle man to do something that you yourself can do for free? It makes no sense
whatsoever, from the people's point of view.

FredK - Oversight doesn't matter anymore, anyway

|2009-01-16 04:42:18

I can't help but laugh at the thought that government oversight would matter in
the case of the Fed.

The bailout had no constitutional ground, yet government
had no problem stepping outside their jurisdiction and outside the will of the
American people in passing the bailout.

It doesn't matter anymore. There is
no longer any oversight over any government or non-government entity.

Moishe

|2009-01-16 07:28:58

FredK, the point is that the government is owned by the bankers. The government
really didn't do the bailout. It was the bankers that did the bailout. So
basically the bankers bailed out themselves. Remember, the government borrows
the money from the banks to do the bailout! That's where all money comes from
in the first place.

This is why the government doesn't seem to care in the
least about the will of the American people: because the government doesn't
answer to the people! It answers to the bankers upon whom it is dependent for
its money supply. Without a constant supply of money, the government can't
operate. Therefore, the government is at the mercy of the bankers, who create
the money out of thin air and lend it to the government at interest(by
purchasing Treasury securities).

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