BOTH PETER AND PAUL ARE ABOUT TO GET FLEECED!

U.S. government, on its way to bankruptcy, Part 4
by Michael Pollaro

... as the protestations of a growing number of foreign creditors over the health of the U.S. government’s finances suggest, protestations supported by actual foreign investment flows to boot, foreign based creditors may already be pulling back from U.S. government debt. And that in turn suggests the Federal Reserve is beginning to grind its monetary engines in response.

... Foreign creditors are pulling back on their combined purchases of government and GSE debt. And the Federal Reserve is buying both to fill the void, and then some. And as we saw in Part 3, this should come as no surprise when America can not possibly finance the U.S. government’s borrowing needs when these needs are a growing multiple of U.S. savings, year in and year out.

Perhaps what foreign creditors are saying is this: Sure, I’ll buy your shorter-dated U.S. government debt, if you buy my longer-dated GSE debt. But until you, the U.S. government get your house in order and prove to us you will not simply resort to the printing press to pay your bills, don’t expect too much of the former and expect a lot more of the latter.

Indeed, this is what any self respecting bond investor would do when they begin to feel the value of their investment is at risk – become cautious, shorten up on maturities and make sure you know the location of the exit door.

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