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Hi, Broken Record here.

Makes you wish for the late nineties when the govt ran a surplus for 4 straight years (98 - 01) and there was even talk of the dangers of the debt getting eliminated entirely.

I'll let someone else do the job here. Please see:

That's a total of 1.8 trillion of treasury and agency bonds that the market has to absorb.

Primary dealers, more or less, *have* to participate in Treasury auctions. There is no question of
"will the market be able to absorb". All that "limits" the amounts that can be bought in the auction
are total reserves in the system. However, reserves are more or less supplied on demand by the Fed
(especially in the case of Treasury auctions because the Fed is the fiscal agent of the government).

Please see:

What is interesting is the fact that the Fed has announced its intention
to drain reserves from the system. On the other hand, deficit spending (all other things being
equal) increases reserves in the system. However, both can (and will) be done - this is what bond
sales by the government, and the Fed roll-off, accomplish (drain reserves from the system).

The Fed and the Treasury work hand in glove. The Federal Government's bond sale operations should
really not be thought of as "borrowing" operations. They are "reserve and money supply management"
operations. Unfortunately, this trips everyone up because everyone thinks of "bonds=debt", this is
just unfortunate nomenclature when discussing U.S. Federal "debt" (which is nothing like debt of a
household or corporation).

Will foreign buyers step in? If you look at current major foreign holders, the numbers don't look that impressive to being with. Only China and Japan currently hold more than a trillion of US treasuries. The other countries have only a few hundred billion each.

Foreign governments do not issue dollars, only the U.S. government does. Every single dollar that,
say the Chinese, hold came from the U.S. in the first place (imports/exports). All that foreign
governments do is decide whether they want to hold these in the form of reserves at the Fed or in
the form of (higher interest paying) Treasurys. The only way the rest of the world can decrease its
holdings of dollars/Treasurys is by buying things from the U.S. (goods or the sort of scenario
envisioned by Buffett in his sharecropper society thought experiment).
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