Worldview Weekend 1) The Federal Reserve is buying 70 percent of U.S. Treasuries. In recent months, central bank purchases of U.S. treasuries have declined from 50 percent to 30 percent, while Fed purchases have increased from 10 percent to 70 percent.
2) The private sector has stopped purchasing U.S. Treasuries. The private sector, once responsible for purchasing up to 30 percent of U.S. Treasury debt, has stopped buying Treasuries. At the same time, top bond funds, like the PIMCO Total Return Fund, once the largest private sector owner of U.S. government bonds, has reduced its holdings of U.S. Treasury debt to zero.
3) China has begun moving away from the U.S. dollar as a reserve currency. Today, the dollar is no longer backed by gold, and China has the world's largest manufacturing base. The People's Bank of China has agreed to allow the yuan to be used as a reserve currency. All China needs to do is use its $1.15 trillion in U.S. dollar reserves to accumulate gold and use that gold to back the yuan.
4) Japan is beginning to dump U.S. Treasuries. Japan is the second largest holder of U.S. Treasury debt, with $885.9 billion in U.S. dollar reserves. Japan may have to spend as much as $300 billion over the next year to rebuild after the compound disaster of the recent earthquake, tsunami and nuclear meltdown. Japan is likely to reduce their Treasury holdings and slow their purchases of new Treasuries as the nation focuses on rebuilding.
5) The fed funds rate remains near zero. The Fed has held the fed funds rate at 0.00-0.25 percent since Dec. 16, 2008, a period of 27 months. This low of a rate is unprecedented, with banks being flooded with excess liquidity of U.S. dollars. The dollar has become the new "carry trade," available for member banks to borrow at zero and use for speculation in the stock, commodities and currencies markets.
6) Year-over-year CPI growth has increased 92 percent in three months. An increase in year-over-year CPI (Consumer Price Index) growth from 1.1 percent in November 2010 to 2.11 percent in February 2011 means that the CPI's growth rate has increased by approximately 92 percent over a period of just three months.
7) Mainstream media denying Fed's target passed. The media are now claiming that the Fed's informal inflation target of 1.5 percent to 2 percent is based off year-over-year changes in the Bureau of Labor Statistics core-CPI figures. Core-CPI excludes food and energy prices. Including food and energy in the calculation would leave no doubt that the Fed's inflation target is not being met.
8) Record U.S. budget deficit in February 2011 was $222.5 billion. The federal budget deficit in February 2011, $222.5 billion, was more than the entire fiscal year of 2007. February's deficit on an annualized basis was $2.67 trillion.
9) High budget deficit as percentage of expenditures. The projected U.S. budget deficit for fiscal year 2011 of $1.645 trillion is 43 percent of total government expenditures in 2011 of $3.819 trillion. That is almost the same level of Brazil's budget deficit as a percentage of expenditures just before Brazil experienced hyperinflation in 1993, and the ratio is higher than Bolivia experienced right before Bolivia's hyperinflation in 1985.
10) Obama lies about foreign policy. Obama campaigned that he would take troops out of Iraq. Now Obama has increased troop levels in Afghanistan, and he is on the verge of sending troops into Libya, causing a third U.S. war in the Middle East. The U.S. is now spending $1 trillion annually on military expenses, including the costs of maintaining more than 700 U.S. military bases in 135 countries around the world.
11) Obama changes definition of balanced budget. Obama has recently redefined "balanced budget" to exclude interest payments on the national debt because the White House knows interest payments are about to explode and it will be impossible to truly balance the budget.
12) U.S. faces largest ever interest payment increases. The U.S. is almost certain to experience a large spike in long-term bond yields, as creditors demand more compensation for financing U.S. debt. Interest payments could reach $500 billion within the next year or two, and more than $1 trillion by mid-decade. When interest payments reach $1 trillion, interest will account for 30 to 40 percent of government tax receipts, up from interest payments being only 9 percent of tax receipts today. No nation has ever seen interest payments on national debt reach 40 percent of tax receipts without experiencing hyperinflation.