Treasury to Conduct Four Debt Auctions For First Time Next Week

To meet the massive needs of the US the treasury is offering 4 debt auctions next week. Although next weeks auctions are for less than last weeks record of $104 billion it is still sizable at $73 billion. The need for the massive debt offerings is to finance the governments big spending spree which has yet to offer real relief to its citizens.

While the debt is largely for Obama’s spending initiatives, it is also for debt servicing which has grown dramatically. It will be interesting to see the bid-to-cover ration, which we expect to be high as usual, with these auctions. The short-term and TIP’s, treasury inflation protected bonds, will be extremely high I am not so sure about the 30 year. Whoever would buy a 30 year treasury at 4.30-4.50% is crazy, period. I don’t know about anyone else, but I am concerned that we might find out that the Fed is doing more buying than we think.

Regardless, under the new administration the debt market has increased to $6.45 trillion and is poised to go higher. Just think if rates go up to historical levels just the servicing of this debt will cost hundreds of billions a year, perhaps trillions at this rate. The US has never actually ever paid off a bond it has always rolled the money or issued a new bond to pay back maturing treasuries. Eventually that will stop as foreign governments realize we will never pay back what we owe and there is no reward in the risk to carry US debt, especially at 4% or so.

People really see what is going on and that our debt has been, for a very longtime, been out of control. My fear is that by the time everyone figures out what has happen it will be too late. This is a national problem and it shows the fundamental flaw in the “new” US economy, we cannot be the worlds leading economy without producing things within our own borders. A service based economy with GDP largely grown through consumption is a recipe for disaster.

See the chart below of the Fed’s balance sheet, scary isn’t it? I know, people are going to say it is coming down a bit, sure, but not even close to what it needs to do. After all this was a credit problem, never a liquidity problem.

[caption id="" align="alignnone" width="970" caption="Very scary."]