Dear Reader,
There’s a little-known, mostly-missed section on the Fed Minutes…
Here’s what it is and why it’s critically important:
Their balance sheet.
First of all, we need a bit of historical context.
When I was a kid we had these “guns or butter” policies.
You couldn’t have guns and butter…
Meaning you couldn’t have military buildup and tax relief.
Well, we forgot guns or butter, and we’ve been giving people guns and butter since the fall of the Berlin Wall and winning the Cold War.
Before then, politicians would have to make tough choices.
But some years ago they discovered what I call “the ultimate tax loophole”:
You could do guns and butter if you borrowed money.
Politicians in Washington sat down to do their budget and said, we don’t have to cut anything and make anybody unhappy. All we have to do is push the problem to the Treasury Department.
Well, the Treasury says, now you’re running a trillion-dollar deficit. Now I’ve got to go and sell bonds.
So our Treasury Department has become “chief bond salesman.”
The Treasury sells the debt, but there’s only so many buyers on the planet. And now China’s out; Russia’s out.
What happens when people don’t buy our bonds?
Our Federal Reserve buys the bonds.
Now the Fed has $6.76 trillion on its balance sheet.
The Fed owns almost $7 trillion of our bonds.
And they’ve been letting $25 billion a month worth roll off their balance sheet, meaning they just let them expire when they come due.
In the Fed minutes last week, the Fed said we’re going to reduce that figure from $25 billion a month to $5 billion.
$25 billion is already modest given an almost $7 trillion bond book on its balance sheet.
But reducing it from $25 billion to $5 billion telegraphs a big message.
Larry Summers, former Treasury Secretary under Bill Clinton and a serious, brilliant man – genius when it comes to understanding financial markets…
Said after the Fed statement:
“This should be getting people’s attention as an alarming development.”
And he said the move indicated the Fed policymakers determined there was, “limited absorption capacity in the market for long-term bonds.”
Why is this a problem? Why is this an “alarming development?”
Look, we have $3 trillion in government debt maturing this year.
Add to that the $2 trillion in budget deficits we’re on track to run right now…
We need to find buyers for $5 trillion in debt.
(I can see why they used to call the U.S. “government Sachs,” like Goldman Sachs.)
In the past, we’d find the buyers for the debt.
They’d be out there.
Now, we’re in the middle of a trade war.
When we add 200% tax on liquor sales of Canadian or French or Irish companies that sell booze in America…
Say Jameson normally sells $200 million in America and brings some of that back to Ireland…
Then they take some of that money and buy bonds…
Demand for our bonds from these companies keeps interest rates low.
But a trade war stops countries from selling products into America. Now they won’t have the money to buy our bonds.
So we’re at a really interesting crossroads in American history.
Our debt and spending problems are choking us. Limiting our capacity to act. This is serious.
We’re going to get to see how much of this Washington is really paying attention to.
Because they’re going to come up with a budget and if it’s not close to balanced, that threatens to spike interest rates like crazy.
Our long-term bonds are not attractive to people at 4.5%.
It’s not enough upside given the deficits we’ve been running.
It seems like all of this is coming to a head.
If you want to understand this, watch our documentary here: Midnight in America.
I show you everything leading up to this very thing – what’s happening, why, and where it all leads…
And, most importantly, the exact steps to take right now to protect yourself.
Go here now to protect your family from what’s already starting.
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