Fed to Print $600 Billion to Pay the Debt

By Robert Romano
The sovereign debt bomb is ticking — and time is running out before it goes off.
On November 3rd, while the American people were soaking in the results of the Republicans’ historic rout of congressional Democrats, the Federal Reserve had its long-awaited meeting to discuss the implementation of “QE2”, or the second round of so-called quantitative easing.

The central bank ultimately announced its intentions to purchase of $600 billion of treasuries over the next eight months. According to the Fed, “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities.”

Americans for Limited Government President Bill Wilson, however, is skeptical of the Fed’s motivations for making the purchases. He believes that the real reason is to paper over the debt.

Wilson said, “The Federal Reserve’s reckless program to purchase $600 billion of treasuries over the next eight months is taking the U.S. into uncharted waters, where the nation’s central bank will be the largest holder of the national debt in the entire world next year. The Fed already holds $834 billion of treasuries, and was already on pace to have over $1 trillion in treasuries by August, 2011, more than China, Japan, or any other foreign creditor.”

Wilson continued, “With another $600 billion on top of the Fed’s expected trillion-dollar stake in the debt, the signal we are sending to the world is that the way to pay for our obligations is to print a ton of new money.”

That would bring the Fed’s stake in the national debt to about $1.6 trillion in just the next year. In comparison China only holds $868.4 billion of the national debt as of August 2010. Japan has $836.6 billion.
So, why wasn’t the trillion dollars of purchases already planned enough? Wilson explains: “In the next three years alone, $5.2 trillion of debt will be coming due. In addition, the Obama Administration plans on increasing the debt another $3.6 trillion over that same period. That means that the Treasury has to sell $8.8 trillion of debt over three years, or $2.93 trillion every year.”

But, that “$2.93 trillion a year is more than the Treasury has ever had to sell,” Wilson noted, adding, “Approximately $630 billion more than it has ever sold. So it is little surprise that now the Fed is coming out saying it is buying another $600 billion of treasuries. This action by the Fed has nothing to do with ‘a stronger pace of economic recovery,’ as the central bank claims. It has everything to do with the fact that we are broke, and we’re printing money to pay the bills.”

So, the nation, after decades of being warned that the national debt is unsustainable — it now totals $13.6 trillion — has finally reached the point where it cannot sell enough treasuries just to roll the debt over. So the Fed is just going to print the money.
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