Understanding “Debt for dummies” recession 2.0

Now the worlds second largest economy, China continues to sell off US treasury’s, leaving Japan as largest U.S. debt holder.

While total Fed Credit shot up by an incredible $31 billion dollars last week, which (in the history of new Fed Credit) and that the Fed created the money to buy $28.3 billion in US government securities!

All of this in One Freaking Week (OFW)!

“I assume that Doug Noland was commenting about this whole nasty Federal Reserve thing, too, when he writes, “First, it was the Federal Reserve. After working studiously to create one, the Fed tossed its vaunted ‘exit strategy’ right into the scrapheap. They were to have moved to reduce holdings and liquidity operations that had ballooned during the 2008 financial crisis. Our central bank abruptly reversed course and instead chose to significantly expand stimulus – even in a non-crisis environment,” so that now “Fed Credit has inflated $189bn in the past 14 weeks, with market perceptions of ‘too big to fail’ and moral hazard being further emboldened.”

And the reason is simplicity itself: if you borrow $1 and promise to pay back $1.05, it is one thing, but if everyone borrows $1 and promises to pay back $1.05, then it is quite another!

Obviously, a lot of people are going to have to borrow $1.10 to pay back the $1.05, and then they have to borrow $1.16, then $1.22, then $1.28, all the time getting worse and worse and worse.

And now that government (local, state and federal) spending comprises HALF of all spending in the USA, the system has hideously mutated into a giant corrupt cesspool that is totally dependent on borrowing to support government spending.

Quote of the week by The Mogambo Guru