We don't want your debt!

Above is a nice chart showing what I have talked about in previous posts about lack of foreign demand for US debt (unwillingness to loan us money). Even this chart looks a lot better than reality. In reality, this little bit of "demand" is where the Fed is paying foreigners in full for their worthless Fanni Mae and Freddie Mac holdings. Then they are supposed to use the money to buy our debt, which is better than the garbage they were holding.

Real demand is less than zero right now -- net selling.

To recap, the US government needs to borrow far, far, far more money than any government in history has ever tried to borrow in a year. US citizens want to lend a tiny bit; foreigners want to lend none. So that leaves the other 90% to sell. A lot of records for demand will have to be completely shattered to keep the federal government and economy going until summer. Have a good day!

The Chinese just can't stop themselves...

If I see one more expert say that China has to continue to loan the US government money because otherwise the results are bad for them, I'll scream. That is ridiculous logic. It's like saying the Titanic couldn't sink because it didn't have enough lifeboats. Let's put this stupidity to bed once and for all.

First, the Chinese have nearly stopped lending us money. Second, they've warned us that they are not lending more. Third, they've warned us many times that the course we're on is "reckless," irresponsible." and "endangering the world economy." So, they don't think much of Obama's and Bernanke's plans. So the idea that they can't stop is silly, since they already pretty much have.

Also, think about this scenario. You have loaned your friend a bunch of money. He keeps asking for more. You are getting increasingly concerned about his ability to pay you back. He knows you're worried so he says, "Just loan me another $5,000 and I'll get you paid back in full next week." The next week he asks for more, and the next week asks you for more. Do you continue to loan him money in the hope of getting all of it back someday, or is there a point at which you might stop?

Of course there is a point at which you would stop. That is the point at which you decide that no matter how much you lend, it won't help and you won't get your money back. On the day you're sure that more won't help, you'll stop. It's that simple. The Chinese aren't the Red Cross giving emergency humanitarian aid. They are hoping to come out ahead. When hope of that is gone, they'll stop. And they virtually have.

Our biggest problem - get out your wallet

Pie chart is for background information about who holds our debt.

Very simply, here is a basic and irreducible problem. In 2010 the United States government will need to borrow $2,500,000,000,000. Note that this number doesn't even include the recent debt of $3 TRILLION that expires and needs to be re-sold this year, for a total of over $5 Trillion. There are three sources of money for that.

One is people and companies inside the United States. Last year they loaned the government $200 billion, or about 8% of what will be needed for the new debt this year.

The second source is people outside the U.S., who sold nearly as much as they bought in 2009, and in the second half of the year were net sellers: They were very unwilling to loan more, especially short-term debt, which is most of what will be needed in 2010. Several major lenders have publicly stated that they are not planning to lend more, and that the U.S. is being "reckless," "irresponsible," and "endangering the world economy." Hardly a way to get people to loan you money.

The third source is printing money, which is where a large part of the money came from in 2009. This is essentially a parlor trick of your left hand borrowing from your right hand. It is not a serious strategy one can do for long. It's like moving money from your wallet to your bank account and back again. Ridiculous.

So, if foreigners won't lend, and printing money heads us towards what they call the "death spiral" (and the Fed claims they won't do it much longer), that leaves people within the U.S. What do you think the chances are that people here will suddenly, starting January 1, start lending TWELVE TIMES as much to our government to make this come out ok? As they say, slim or none, and slim is out of town.

A failure to borrow enough money to run our government means either much higher interest rates paid and a plunge into depression, or bond auction failure, which means game over. Hmmm.