U.S. federal debt is not only piling up at a dangerous, unrepayable rate; it is also being deliberately shaped as shorter- and shorter-term debt, Treasury bills which require rolling over within months. Some $724 billion in new federal debt securities was issued in the week of Aug. 4 alone, and $556 billion of it was in Treasury bills of a year or less maturity, including $275 billion in bills of less than two months’ duration.
Despite President Trump’s constant attacks on Federal Reserve Chair Jerome Powell and moves to replace or outvote him to lower interest rates, Powell and Treasury Secretary Scott Bessent are meeting weekly for breakfast, and coordinating the shift to extreme short-term debt issuance, according to Wolf Richter’s Aug. 8 “Wolf Street” column. Those Fed governors who push this extreme short-term orientation along with Trump and Bessent, want the Federal Reserve to remove from its balance sheet, $1.5 trillion in mortgage-backed securities and $2 trillion in longer-term Treasuries, and replace them by buying $3.4 trillion in short-term bills!
This will more closely gear the Federal Reserve’s control of the shortest-term rates, through its semi-monthly meetings, to the Treasury’s new debt issues. The Federal Open Market Committee (FOMC) of the Fed will supposedly be able, in September, actually to push down Treasury rates in general. (Last September-November, the FOMC’s short-term rate cuts sent long-term rates in the opposite direction. Those longer-term rates are much more reflected in interest rates in the real economy, as opposed to the rates in the speculative casinos.)
But of course, this massive short-term issuance will make a single, churning speculative mass out of the Federal Reserve’s rate changes and the rates on the Treasury’s bills—and of course, their repo and other financial derivatives contracts of hedge funds, which use Treasuries as the collateral to borrow their speculation funds.
Speaking of hedge funds, they now have 27% of U.S. Treasury holdings. Foreign holders, who had 50% in 2015, hold 30% now. There is roughly $4 trillion every day in Treasury repurchase agreement—or repo—financing for derivatives speculations.
