From Gonzalo Lira:
... What we should look at is the simple, macro question: If the Fed ends QE 2 in June as they have said they will, who will take up the slack? Who will purchase between $75 and $100 billion worth of Treasury bonds at yields of 3.5% for the 10-year?
Is there someone?
The answer is, No one will take up the slack.
Who, Japan? They’ve got some well-known troubles of their own – they’re all about selling Treasurys and buying up yens, both now and for the foreseeable future.
The Chinese? They’ve been quietly exiting Treasurys for a couple years now, and going into every commodity known to man.
Europe? Are you serious – Europe? Please don’t make me laugh that hard – it hurts.
The fact is, there's no one outside the United States that I can think of who would willingly buy Treasury bonds – not to the tune of +$75 billion a month.
Therefore, if no one outside the United States would willingly give money to Washington to fund the deficit, someone inside the U.S. will have to step up.
The obvious-obvious-obvious solution to this mess is for the Federal government to stop spending its way to oblivion – but does anyone realistically see this happening?
Therefore, as Spock always says, if you eliminate the impossible, whatever remains, however improbable, must be the truth.
If foreign sources of funding will not cover the Federal government's deficit after June 2011, and Washington will definitely not cut spending in any sort of realistic sense, then there really are only two – and only two – possibilities...
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