US National Debt Spiked by $1.5 trillion in 6 Weeks, to $25 trillion. Fed Monetized 90%

I’d never imagined I’d ever see this sort of spike, though in recent years I added an upward arrow with “Debt out the wazoo” to my charts, not realizing just how factually accurate this technical term would become.

By Wolf Richter for WOLF STREET.

The US gross national debt – the total of all Treasury securities outstanding – jumped by $1.05 trillion with a T in the four weeks since April 7 and by $1.54 trillion in the six weeks since March 23, to $25.06 trillion, the Treasury department reported today.

Those trillions are whizzing by so fast it’s hard to even seen them. WOOSH… What was that? Oh, just another trillion. The flat spots in the chart are the periods when the debt bounced into the debt ceiling. Yeah, those were the days!

I’ve been lamenting and lambasting the stupendous growth of the US national debt since 2011, the beginning of my illustrious career as a gnat in the big world of financial media. And through all these years, I’d never imagined that I’d ever see this sort of spike in the US debt, though in recent years I’ve been adding an upward arrow and the green label “Debt out the wazoo” to these charts, not realizing just how factually accurate this technical term would become.

The US debt was even surging at an accelerating rate during the “Best Economy Ever,” when there should have been a surplus and a reduction in the debt, so that the government can go into debt during bad times.

I wrote back then, for example on February 19, when the debt had spiked by $1.3 trillion over the past 12 months – yeah, those were the days! – to $23.3 trillion: “But these are the good times. And we don’t even want to know what this will look like during the next economic downturn.”

Whether we want to know it or not, we now know it and cannot un-know it.

And we didn’t even have to sit on the edge of our collective chair for long for that next economic downturn to arrive. It’s more than just a downturn. It’s the big one. The nightmare has become a reality. And waking up or looking away no longer helps.

The government has now signed into law a series of stimulus packages totaling $2.8 trillion or thereabouts.

Phase 1: $8 billion, enacted on March 6. To fight the spread of The Virus

Phase 2: $100 billion, enacted on March 18. Tax credits for employers offering paid sick leave, plus increases to unemployment benefits and food assistance.

Phase 3: $2.1 trillion, enacted on March 27. Largest stimulus package ever, dwarfing the 2009 stimulus package of a mere $800 billion. The CARES Act includes provisions to bail out the investors of Corporate America and financial markets more generally, directly and also indirectly via the Fed’s Special Purpose Vehicles (SPVs) to which taxpayers provide the equity capital to take the first loss.

The package includes extra unemployment benefits, free money for taxpayers and retirees, funds for the healthcare system, some money for “small businesses” under the Payroll Protection Program (PPP) that quickly tended to flow to well-connected not-so-small businesses, etc. etc. This is a huge massive complex bill with lots of goodies in it.

Phase 3.5 or 4: $484 billion, enacted on April 28. Refills the PPP and the Economic Injury Disaster Loans, plus sends money to health care providers, hospitals, and for coronavirus testing.

Phases 5 – umpteen: to be enacted soon.

So about $2.7 trillion for now. At first, there was a mad scramble of lobbying to get all the favorite provisions into the bills. Now a mad scramble has ensued to siphon out this money. Billionaires and millionaires will be printed, especially if they’re well-connected.

And lobbyists are highly motivated to get even more stimulus packages through Congress. This is a once-in-a-life-time opportunity.

And while these trillions sally forth into the wild yonder, tax revenues are collapsing. The difference has to be made up with borrowing. The Congressional Budget Office has jacked up its estimate for the fiscal 2020 deficit to $3.7 trillion. There are only five months left in this fiscal year. So these trillions are going to have to be borrowed in a hurry.

Fed steps up to the plate, monetizes 90% of the additional debt.

From March 11 through its balance sheet released last Thursday, the Fed added $1.39 trillion in Treasury securities to its assets. Over the same period, the Treasury Department added $1.54 trillion to the outstanding debt. In other words, the Fed has – indirectly, as is the iron rule in the US – monetized 90% of this additional debt. We’re living off printed money, pure and simple.

But this was heavily frontloaded, with the Fed buying $1.1 trillion in Treasuries over the first 3.5 weeks. The Fed has since backed off. Last week, it bought only $62 billion. And it looks like the market will be tasked to digest more of this debt.