Questions & Answers
1) Do foreign countries holding our debt have the right to cash it in at any time?
If you mean can they go back to the Treasury and demand back the full face value of the financial instruments they have purchased, then no. As with any other bond, the US is not obligated to pay back the bond until it expires. If you buy a 10 year bond then the US does not have to pay back the money you paid for it until those 10 years are over. The holder of the bond, let's assume the original purchaser, can however, sell the bond to someone else at any time. The original (or any subsequent) purchaser can sell the bond for more or less than what was originally paid for it. Whomever ends-up with the bond at the end of its life is who gets the original investment back from the Treasury.
2) Are these debt instruments called Treasuries, Bonds, or Securities? Are these terms interchangeable, and if not, what's the difference?
For this, I defer to Wikipedia which actually has a very good answer. Per the same:
Quote:
Treasury securities are government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. They are the debt financing instruments of the U.S. Federal government, and are often referred to simply as Treasuries. There are four types of treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Savings bonds. All of the Treasury securities (besides savings bonds) are very liquid and are heavily traded on the secondary market. -
Wikipedia
Further down in that same link, is a good explanation of the difference between the various types of Treasuries. The one everyone pays attention to is the 10-year T-notes because they're the ones which are linked to mortgage interest rates.
Because mortgages are tied to the 10-year bond, there is considerable pressure on the Federal Reserve not to raise interest rates to make the 10-year bond more attractive to investors. Should they raise interest rates? Traditional economic theory would say, 'yes of course.' Political economic theory would say, 'do you want to send even more marginal mortgage borrowers with variable interest rate loans into default and ruin the financial institutions who leant the money?' To finance our debt, the 10-year T-bill is essential. If we don't support it and make its return more attractive than shorter term securities, then fewer and fewer nations will want to buy the bonds. This is why we're damned if interest rates go up and damned if they don't.
3) My understanding is that the Federal Reserve will buy higher interest bonds sold on the bond market and issue lower interest bonds in their stead when bonds are dumped on the bond market. They issue higher interest bonds when the bond market falters, as well as issue new bonds to cover the government's debt. Is this correct?
Essentially yes, but remember that all they're doing is robbing Peter to pay Paul. This is very much a juggling act. To raise something up they have to let something drop down and to prevent that something from dropping down too far they have to raise it back up, but at the expense of something else; usually what they just resupported before. As before, when they offer higher interest rates to support faltering bonds, it translates into higher interest rates for the American consumers and higher interest payments we have to fund in tax revenue.
4) I saw where you had posted the US was now 66 trillion dollars in debt. Where did this figure come from?
That figure comes from a report issued in 2003 by Wharton professor Kent Smetters and Jagadeesh Gokhale, the economist at the Cleveland Federal Reserve Bank:
Quote:
Their report,
Fiscal and Generational Imbalances: New Budget Measures for New Priorities, estimates that the “fiscal imbalance” – existing debt plus future projected deficits – is an enormous $45.47 trillion, expressed in 2003 dollars. That dwarfs the $3.8 trillion debt that the government officially reports. If steps are not taken immediately to correct the imbalance, it will rise to $53.96 trillion by 2008, the report says. -
Fiscal and generational imbalances: new budget measures for new budget priorities
Essentially what they're talking about is not only all the debt we've issued, but all the unfunded obligations- programs the government has pledged to fund in the future including Social Security and Medicaid/Medicare- which the government does not now include in its figures.
If you were an accountant at a private accounting firm or a public corporation, you'd be stripped of your license and thrown in jail for practicing accounting the way the government does. Being the government, they can do what they want. The Comptroller General of the United States, David Walker, agrees. Mr. Walker has taken his show on the road to try and get the United States to wake-up.
I highly urge everyone reading this to take a few minutes to view the following link. If you think I'm a crackpot then listen to the Comptroller General of the United States. As he's not elected, he can get away with saying what he does. -
CBS Interview with David Walker
5) How much of this debt iis held by foreign countries, and where can I find a breakdown of how much each of these countries holds?
6) I understand (kind of) that dollars are the medium of exchange on the New York and London Oil Bourses. Are these the only commodities markets that deal only in US dollars?
If you are asking, is oil the only commodity only sold in U.S. dollars then the answer is (for now) yes.
7) How would the Federal Reserve react to massive (trillions) of dollars in bonds being dumped on the bond market with no buyers?
In theory, they'd have to spike interest rates, which is pretty much what they did during the 70s and early 80s to counter stagflation. The higher the return on an investment is, the more money will flow toward that investment. It's the only weapon the Federal Reserve has short of buying back all the bonds to keep the price stable but that would ruin the member banks of the Federal Reserve and the US along with it.
Interesting point. Who are the member banks of the Federal Reserve? As a private organization, the Federal Reserve is composed of private banks. Here they are:
- Rothschild Banks of London and Berlin
- Lazard Brothers Bank of Paris
- Israel Moses Sieff Banks of Italy
- Warburg Bank of Hamburg and Amsterdam
- Lehman Brothers Bank of New York
- Kuhn Loeb Bank of New York
- Chase Manhattan Bank of New York [Now JP Morgan Chase]
- Goldman Sachs Bank of New York
These are the banks that run the US monetary system. (Source:
'T' Minus Ten by Ed Steer for Le Metropole Cafe.)
If that list makes you wonder then you'll be thrilled to know that even they aren't the true powers behind the throne. The Federal Reserve and its sister bodies in all other foreign nations have to answer to the capo di tutti capi of reserve banks and that's the Bank of International Settlements (BIS)out of Basel, Switzerland. Our Federal Reserve Chairman, Ben Bernanke, serves on the board of directors of the BIS. The BIS is another product of the aftermath of World War I and it is no odd conincidence that its establishment coincides with the establishment of the Federal Reserve here in the US. If you want to see who are the public directors and managers of the BIS,
just look here. They have nothing to hide, perhaps because they have nothing to fear.
If you'd like a more detailed view, check out
The Bank for International Settlements: Evolution and Evaluation by James C. Baker.
The BIS was formed with funding by the central banks of six nations, Belgium, France, Germany, Italy, Japan, and the United Kingdom. In addition, three private international banks from the United States also assisted in financing the establishment of the BIS."
Quote:
Each nation's central bank subscribed to 16,000 shares. The U.S. central bank, the Federal Reserve, did not join the BIS, but the three U.S. banks that participated got 16,000 shares each. Thus, U.S. representation at the BIS was three times that of any other nation. Who were these private banks? Not surprisingly, they were J.P. Morgan & Company [Now known as JP Morgan Chase], First National Bank of New York [Now known as Citigroup]and First National Bank of Chicago [was Bank One but was bought out in 2004 by JP Morgan Chase]. -
ibid.
