Monopoly money

Most of us know that all of the money held in Trust for Social Security and Medicare doesn't really exist. The Trust Funds are Government Bonds owned by various Federal Government agencies with no way to pay them back. There are several other Trust Funds that are financed in the same manner.  The total of all these Trust Funds made up 99% of government held Federal Debt at the end of 2007.  The amounted to 5.6 trillion dollars or about 49% of the National Debt. The other 54% was held by individuals, state, city and foreign governments.

In November 2008 that began to change as Federal Reserve Banking (the Fed) Chairman Bernanke began what he termed Quantitative Easing. What this amounted to was the US Mint printing additional paper money. As Congress increased deficit spending, rather than sell bonds to traditional buyers to raise cash,  the Fed bought the bonds at an artificially low interest rate, something less than 2% in most cases. They then issued the new money to the Government Agencies to spend. This has resulted in the Federal Government being owner of 61.3% of its own debt today. And the total National Debt has ballooned from 12.5 to 17 trillion dollars over the last five years.

The ultimate irony of this policy is that the interest the government owes on this massive debt is now only 68% of what was owed in 2008.  Only our politicians in Washington DC can pretend this is being done with real money! 

If you believe the liberal press, this was done to drive investors into more risky investments. But, would you loan money to anyone who had gone from owing  60%  of their gross income to owing 95%? Well, that's the position we are in today. The National Debt is equal to about 95% of Gross Domestic Production, and the Fed, which is part of the Government, is loaning the other Government Agencies the money at less than prevailing interest rates with no collateral required.

The truth is that this policy has reduced the value of the dollar and stock therefore cost more to buy. Last week Bernanke told reporters that the Fed would start backing off on Quantitative Easing. The immediate result was a triple digit two day drop in the stock market. The market has remained below Fifteen thousand since that time.

The stock market obviously doesn't think the US economy can absorb the additional 5 trillion dollars in Deficit Spending Congress is expected to create over the next six years.