Our national debt has now reached a record $15.6 trillion, thus eclipsing our gross domestic product of $15.1 trillion. Of this $15.6 trillion in debt, $10.8 trillion is held by the public (including investors, the Fed, state and local governments and foreigners), and the remaining $4.8 trillion is held by various government agencies and trust funds (including Social Security).
Our national debt consists of Treasury securities ranging from 30-day T-bills to 30-year T-bonds. Surprisingly, the average interest rate on our national debt is now down to only 2.2%. The average maturity on our national debt is only 62.8 months. What this means is that 71% of our privately-held Treasury debt must be rolled over in the next five years. The US now surpasses Greece, Portugal and Spain when it comes to relying on short-term borrowing to finance our national debt.
The question is, will there be ample buyers to roll over all this debt in the next five years? This may shock you but the Federal Reserve bought up 61% of all net Treasury issues in 2011. This makes the Fed the largest buyer of US Treasury securities! What happens when the Fed has to stop this practice? Higher interest rates come to mind, especially when you consider that foreign buyers of our debt have started to scale back their purchases. China, which is the largest foreign holder of our debt, actually decreased its holdings of Treasuries by $156 billion in the second half of 2011. This is scary!
What, you haven't heard all this in the media? Of course you haven't. But I will give you the facts and the dangerous implications in today's E-Letter. Please read it carefully. We need to get this information to as many people as possible. Let's jump right in.