Enron used off balance sheet vehicles to purchase Enron securities in order to increase their values. Now it seems as if the Federal Reserve is doing the same sort of dance. Obama funds his trillion dollar-plus budget by issuing a stream of Treasuries; people are demanding a higher interest rate in light of the vast supply and the increased risk of relying on American IOUs.
The higher rates will be a drag on the budget deficit and the economy and will crowd out private business and investment. So what to do? Instead of cutting the deficit, Obama relies on the Federal Reserve to step up to the plate. The Federal Reserve starts buying up vast quantities of the Treasuries that fewer and fewer people find worthwhile, loading up the Federal Reserve balance sheet as it never has been before.
It seems there is an inescapable reality, despite the government's efforts to get "creative": our ability to borrow is not infinite and the fiscal irresponsibility many (including some in the president's own party) railed against has its price. In the end, no amount of political spin can convince bond purchasers to soak up all the red ink gushing from the U.S. budget.
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