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The real US government debt

15/07/2012

With all this quantitative easing, shouldn’t we be afraid of inflation?

Luckily the fractional reserve system works also on government securities and not only on cash bills. After all every bank gives to you cash of 95% against collateral of government security and it is as good cash as the one Ben Bernanke prints. So no surprise if the quantitative ease has no real effect on the economy at all. Anyway , i just heard that the banks reached already reserves of 20% and soon there will be no fractional reserve system at all, this is the banks help to Obamas anti-deflationary policy.

I would like to answer the question, why all the monetary measures don’t help .

1. The legal reserve requirements in US is 10%, but since the banks have no more “AAA” clients like, Greece, Spain, sub-prime mortgages, AIG, General Motors, Enron, et.c., the banks have no one to whom to borrow. So they keep it in the Fed reserve.

2. In my sketch article;

https://rodeneugen.wordpress.com/2012/07/10/after-all-it-is-not-so-bad-with-the-us-economy/

I collected some interesting data as to 12.2011, (Most of it published in CIA world book). The total US national debt is 15 trillion, out of it the public debt (Government securities) 10 trillion, the difference is between non-marketable and marketable securities. The non marketable are liabilities, but have only marginal impact on the current economy, so we can leave them where they are. Out of the marketable about 5 trillion are hold by foreigners amazingly as reserves. Most of the remaining is probably hold by long term funds, like pension funds etc. It is after all not surprising at all, that so little Government securities are held by general public, since their saving rate is already years close to zero. At the end of the day, the public debt seems surprisingly healthy, until the foreigners are ready to hold their reserves in US dollars.

http://www.texasenterprise.utexas.edu/article/us-debt%E2%80%93intragovernmental-holdings-when-you-owe-yourself-does-it-still-count

Chessman_Figure2-6s.jpg

http://www.treasurydirect.gov/govt/reports/pd/mspd/2012/opds062012.prn

The MB is the reserve of commercial banks deposited in the Federal bank, and it grew roughly between 2008-2012 from 1 trillion to 2.5 trillion,  and the M2 in the same period from about 8 to 10 trillion.

http://m5.paperblog.com/i/19/192724/the-changing-value-of-money-L-AX1_yl.jpeg

http://m5.paperblog.com/i/19/192724/the-changing-value-of-money-L-AX1_yl.jpeg

http://m5.paperblog.com/i/19/192724/the-changing-value-of-money-L-vFR16p.jpeg

http://m5.paperblog.com/i/19/192724/the-changing-value-of-money-L-vFR16p.jpeg

The M1 did not change much during this time. The monetary ease obviously doesn’t work. Why is it so? Because of luck of business opportunities. Real estate shrinks. Wall street is not what it used to be, nobody trusts anymore nicely warped mortgage packages.

Is any exit from here? Only to roll up the sleeves and start to compete the Asians.

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