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CRFB Webinar - Who is Buying Our New COVID-19 Debt - May 11, 2020

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Slide deck used in CRFB's May 11th webinar, entitled "The $6 Trillion Dollar Question – Who Will Buy Our Debts?".

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CRFB Webinar - Who is Buying Our New COVID-19 Debt - May 11, 2020

  1. 1. CRFB.org
  2. 2. CRFB.org 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 We Face a Deep Economic Crisis Thousands of Weekly Initial Unemployment Claims Source: U.S. Employment and Training Administration 2
  3. 3. CRFB.org And Are Spending Trillions to Stabilize the Economy Response Allowed Disbursed/Committed Deficit Impact Legislative Actions $3.6 trillion $1.4 trillion $2.4 trillion Coronavirus Preparedness & Response Supplemental Appropriations Act $8 billion >$1 billion $8 billion Families First Coronavirus Response Act $192 billion ~$32 billion $192 billion CARES Act $2.7 trillion $1.2 trillion $1.7 trillion Paycheck Protection Program and Health Care Enhancement Act $733 billion $186 billion $483 billion Administrative Actions ~$380 billion ~$300 billion ~$80 billion Declare national emergency ~$50 billion Unknown ~$50 billion Delay tax filing deadline to July 15 ~$300 billion ~$300 billion $0 Other executive actions ~$30 billion Unknown ~$30 billion Federal Reserve Actions >$5.5 trillion $2.0 trillion N/A Interest rate changes N/A N/A N/A Asset purchases $1.6 trillion** $1.5 trillion N/A Liquidity measures >$1.9 trillion $468 billion N/A Emergency lending programs and facilities >$2.0 trillion $93 billion N/A Deficit impact is from 2020-2030 / **Represents amount disbursed plus the amount scheduled to be purchased through the following week, currently $51 billion for Treasuries and $37 billion for mortgage-backed securities. 3
  4. 4. CRFB.orgSource: CRFB Calculations Bringing Debt to Record Levels Percent of GDP 101% 81% 60% 70% 80% 90% 100% 110% 120% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Range of Uncertainty Updated Debt Projections (current law) Pre-Crisis Debt (current law) 4
  5. 5. CRFB.org And Generating Unprecedented Deficits Billions Source: CRFB Calculations $3.7 trillion $1.1 trillion $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Range of Uncertainty (current law) Updated Deficit Projections (current law) Pre-Crisis Deficit Projections 5
  6. 6. CRFB.org The U.S. Is Issuing Trillions in New Debt Billions of Dollars of Net Debt Increases Source: Treasury Department -$12 $9 -$14 $23 $386 $212 $172 $124 $65 $42 $200 $262 $1,379 -$200 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 6
  7. 7. CRFB.org How is Higher Federal Debt Financed? 1. Greater savings (actors spend less and buy bonds) 2. Asset reallocation (actors buy fewer stocks and private investments and more government bonds) 3. Foreign bond purchases (foreign governments, central banks, individuals, or companies buy U.S. bonds)  Foreign purchase of private investment can also spur asset reallocation 4. Central bank purchases (the Fed buys bonds) 7
  8. 8. CRFB.org Who Is Buying Our Debt? Source: Federal Reserve Board of Governors, Treasury Department 8 Japan China Other Foreign State & Local Governments Mutual Funds Depository Institutions Other Domestic Holdings Federal Reserve $0 $4 $8 $12 $16 $20 Sept. 2019 Trillions FOREIGN 40% DOMESTIC 47% FED 13%
  9. 9. CRFB.org Who Is Buying Our Debt? Japan Japan Japan China China China Other Foreign Other Foreign Other Foreign State & Local Governments Mutual Funds Depository Institutions Other Domestic Holdings Domestic Holdings Domestic Holdings Federal Reserve Federal Reserve Federal Reserve $0 $4 $8 $12 $16 $20 Sept. 2019 Dec. 2019 Feb. 2020 Trillions Source: Federal Reserve Board of Governors, Treasury Department 9
  10. 10. CRFB.org Who Is Buying Our Debt? Japan Japan Japan China China China Other Foreign Other Foreign Other Foreign State & Local Governments Mutual Funds Depository Institutions Other Domestic Holdings Domestic Holdings Domestic Holdings Foreign & Domestic Holdings Federal Reserve Federal Reserve Federal Reserve Federal Reserve $0 $4 $8 $12 $16 $20 Sept. 2019 Dec. 2019 Feb. 2020 Apr. 2020 Trillions Source: Federal Reserve Board of Governors, Treasury Department 10
  11. 11. CRFB.org $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 $1.8 3/4 3/11 3/18 3/25 4/1 4/8 4/15 4/22 4/29 5/6 On Net, The Fed has Absorbed ~All New COVID Debt Trillions Source: Federal Reserve Board of Governors, Treasury Department 11
  12. 12. CRFB.org But They Are Buying Longer Maturities… Billions $236 $951 $222 $117 $1,437 $170 $34 -$22 -$200 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 Bills (< 1 Year) Notes (1-10 Years) Bonds (10-30 Years) TIPS and FRN (Various Maturities) Fed Purchases New Debt Held by the Public Note: Chart shows Fed purchases and Treasury auctions since 3/4/2020 Source: Treasury Department, Federal Reserve Board of Governors 12
  13. 13. CRFB.org Did “Money Printer go BRRR”? 13
  14. 14. CRFB.org Feb. 26th: $4.16 trillion May 6th: $6.68 trillion $0 $1 $2 $3 $4 $5 $6 $7 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Mortgage Backed Securities U.S. Treasuries Other Quantitative Easing or Debt Monetization? Trillions Source: Federal Reserve Board of Governors $4.02 trillion $1.61 trillion $1.06 trillion 14
  15. 15. CRFB.org Mortgage Backed Securities U.S. Treasuries Other Quantitative Easing or Debt Monetization? Trillions Source: Federal Reserve Board of Governors -$7 -$5 -$3 -$1 $1 $3 $5 $7 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Other Liabilities Non-Reserve Deposits Reserve Deposits Currency Treasuries Mortgage-Backed Securities Other Assets 15
  16. 16. CRFB.org Quantitative Easing or Debt Monetization? Nominal Interest Rates 0% 5% 10% 15% 20% 25% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 Past Recessions Effective Federal Funds Rate Source: Federal Reserve Bank of New York 16
  17. 17. CRFB.org The U.S. Central Bank Isn’t Alone Billions of Monthly Net Purchases -$200 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Federal Reserve European Central Bank Bank of Japan Bank of England Bank of Canada Source: Bloomberg Economics 17
  18. 18. CRFB.org Will The Fed Keep Buying?  The Federal Government will likely issue $2 trillion more in debt over the next five months (FY2020), alone  Six weeks ago, the Federal Reserve has said they would buy up to $75 billion in Treasuries per day.  But purchases are slowing - The Federal Reserve has been tapering purchases and will buy just $7 billion in Treasuries per day this week  Meanwhile, China has threatened to reduce it’s debt holdings… 18

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