Funding Stimulus With The Most Treasury Issuance Of All Time

Between the $787b recovery plan and the $250b foreclosure plan announced last week, we’re into the trillions in terms of bailouts—and that’s just this year. It’s also excluding the $700b TARP plan from last year and the forthcoming bank bailout plan coming from Treasury Secretary Tim Geithner.

So where is all the money coming from? Yes, taxpayers. But what does that really mean? It’s not like a single year or two years of tax revenues can cover all of this. So it means that Treasury issues new bonds to raise the money. Earlier this month, the Economist covered this topic and pointed out that the U.S. will borrow (in the form of Treasury issuance) more in 2008 and 2009 than we did in all of the past 27 years combined. See chart and also excerpt below:

The biggest force behind the bond-market shock is the onslaught of new issuance as the government seeks to finance the gaping budget deficit, Fed liquidity programmes, mortgage purchases and bank bail-outs. Yields moved still higher this week partly on the Treasury’s announcement that it would borrow a whopping $493 billion this quarter. Wrightson ICAP, a research firm, predicts the Treasury will issue $1.8 trillion this year, which combined with $1.5 trillion last year, would exceed all the net borrowing of the prior 27 years combined (see chart).