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Treasury Scarcity to Grow as Fed Buys 90% of New Bonds

By Liz Capo McCormick & Daniel Kruger - Bloomberg - Dec 3, 2012 12:39 PM ET

 

Even as U.S. government debt swells to more than $16 trillion, Treasuries and other dollar fixed- income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds. 

 

The government will reduce net sales by $250 billion from the $1.2 trillion of bills, notes and bonds issued in fiscal 2012 ended Sept. 30, a survey of 18 primary dealers found.

 

At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co. 

 

What does this mean?  

 

It means that as the US steadily increases its QE program to 85 Billion Dollars of New Debt Per month - thus adding to the pace of the unsustainable Debt Load - it is buying nearly all of its own new debt.

 

 Bernanke explained that this would actually shrink the debt as the debt interest payments we pay ourselves can be used to retire the debt.

 

 I'm not kidding. 

 

Get it?  

 

I don't.

 

I don't get this either: How does the paper currency survive this over time?