Joey's Blog » department of treasury

US Debt issuance for 2009 currently $1.51 trillion

joey — Mon, 28 Sep 2009 15:46:22 +0000

At the beginning of 2007, January 2^nd we had $8.678 trillion in outstanding public debt. One year after Lehman went bankrupt, Sept 15^th 2009, we have $11.8 trillion in outstanding public debt showing over a $2 trillion increase.

The U.S., as of Sept 2009, has sold $1.517 trillion in debt this year compared with $585 over the same period last year. Barclays forecasts the government will sell $2.1 trillion in debt for 2009 and $2.5 trillion for 2010 compared with $892 billion for 2008.

Congress determines the limit to the amount of debt the Department of Treasury can issue. The American Recovery and Reinvestment Act of 2009 signed into law on Feb 17 2009 set the limit to $12.104 trillion. The Treasury currently forecasts it will hit this limit by Nov 2009 and started asking Congress to increase the limit again in Aug 2009, only 7 months after it was increased.

It is obvious the national debt is setting record highs. This national debt is a promise of repayment to the holders and is backed by the government, which represents the taxpayers. It is an ever increasing burden for all taxpayers.

US Treasury Debt History – http://joeyconway.com/brq96x

Bloomberg – Negative Bond Returns Converge With Mortgage Miracle - http://joeyconway.com/c85t3z

Bank of America Loan Backstop

joey — Wed, 09 Sep 2009 14:51:00 +0000

On January 16^th 2009, Bank of America (BofA) disclosed with its first ever quarterly loss of $1.79 billion, a US government loan backstop for $118 billion on assets mostly from its government encouraged Merrill Lynch acquisition¹. The loan backstop is designed to cover a pool of financial instruments, assets, for up to $118 billion with maturities up to 10 years through the Treasury and FDIC with the Federal Reserve providing the actual non-recourse loan². The non-recourse loans means in the event BofA cannot repay the loan, the government is entitled to seize the risky assets being pledged by BofA as collateral, but if the loan value exceeds the value of the risky assets, it cannot go after BofA for the remaining loan amount.

There are a few strict limits imposed on BofA when using this loan facility: executive compensation must be submitted and approved by the government, dividends on common shares cannot exceed $.01 per share per quarter for three years without government approval, $4 billion of preferred stock with an 8% dividend rate along with other fees are to be paid to the government, and any material disposal of the risky assets in the pool by BofA has to be approved by the government².

As of July 2009, the overall confidence of the economy has picked up and BofA has never used the funding provided by the government loan backstop. Both sides, the government and BofA, agree the accord was never signed, but the government wants BofA to pay fees in the range of $2-4 billion for having the implicit government guarantee and potential access to the loan facility³.

1. Bloomberg – Bank of America Posts Quarterly Loss After Bailout

2. Treasury – Summary of Terms

3. Bloomberg – Bank of America Said to Balk at Paying Backstop Fee

Fed has purchased $252 billion of Treasuries

joey — Thu, 13 Aug 2009 20:23:23 +0000

On Tuesday, August 11th, the Federal Reserve purchased an additional $2.7 billion of US Department of Treasury bonds maturing from August 2026 through May 2039, essentially 17-30 year bond maturity dates. In March, the Federal Reserve stated it would purchase up to $300 billion in US Treasuries through September.

Yesterday, Aug 12th, it announced it will extend the Treasury purchase program until October and keep the current limit of $300 billion. By extending the deadline for the Treasury purchase program, the Federal Reserve keeps the possibility open it might want to expand the program, if it determines necessary. As of Tuesday, Aug 11th, it has aquired a total of $252.7 billion out of its $300 billion goal in US Treasury debt according to its balance sheet.

Bloomberg article on $2.7 billion purchase: http://joeyconway.com/zzkb62
Bloomberg Fed Treasury Purchase Ticker: http://joeyconway.com/rffndg
Federal Reserve August 11th Purchase Announcement: http://joeyconway.com/pkzbky

Fed Follows Through with Quantitative Easing Program

joey — Wed, 12 Aug 2009 19:04:37 +0000

The two day Federal Reserve Open Market Committee meeting ended today. Fed official press release linked below.

The majority of monetary policy programs stayed the same. Fed Funds rate will continue to be held at a record low of 0 – 1/4% for an “extended period.” The programs to purchase up to $1.25 trillion of agency, GSE (Freddie, Fannie, etc), mortgage-backed securities and up to $200 billion of agency, GSE, debt will continue until the end of 2009 as originally stated in the March 18th announcement.

There has been a change in the program regarding the $300 billion of US Department of Treasury Debt to be purchased, essentially debt monetization. “…the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.”

The purchase of $300 billion Treasuries was originally planned to end by September, but now will be extended an extra month. They word the addition of one month to the Treasury purchase program as follows, “the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.”

The statement then ends with the usual reassurance the Committee will continue to monitor and evaluate its actions based on the changes occurring in the markets and will adjust accordingly.

Federal Reserve Open Market Committee Monetary Policy Announcement Aug 12 2009: http://joeyconway.com/hcrgt6

Bloomberg Article: http://joeyconway.com/w87vt8

Government Debt Monetization Explained

joey — Fri, 31 Jul 2009 15:08:04 +0000

When the government wants to spend money it does not have, there are basically three options, raise taxes, print money or borrow money. The Monetization of Debt involves the issuance of debt or simply known as borrowing money done by the Dept of Treasury and the printing of money done by the Federal Reserve.

Monetizing Debt is essentially the Federal Reserve buying government debt, bonds, issued by the Treasury with money the Fed has printed.

The overall picture: One branch of the government, the Treasury, is borrowing money from the public and then the public is being paid back with printed money by another branch of the government, the Fed. The net result of buying government debt with government issued money is an increase of the money supply which can cause inflation.

General concepts and Step by Step breakdown of the debt monetization process found in this article – http://joeyconway.com/4dbrk5