Informational Capital

The Federal Government will need to increase the federal debt by $2 trillion to bridge the normal budget deficit and to pay for all of the "bailout" initatives.  In just 6 weeks since the credit cris accelerated in mid-September, the Government has raised approximately $600 billion.

So far, yields have stayed low because spooked investors are seeking the safety and security of Treasury Notes/Bills.  However, the worry is that there just isn't $2 trillion in demand for new Treasuries, which would result in rising interest rates to attract people to buy the debt...or if the Government is determined to keep interest rates low, then they might start printing money, contributing to inflation, rather than raise the debt in the market.  Another concern is that with most of the World's government enacting some sort of rescue package, there will be diminished demand from international investors and governments, who have been buying over 40% of newly issued U.S. Government debt this decade.

Finally, with the demand by governments for huge amounts of cash in exchange for debt, there will be less capital in the world to be used for private investment.

Selected Quotes from the AFP article.

The Treasury said the federal government had borrowed 530 billion dollars from the markets in the third quarter. Of that amount, 300 billion dollars was borrowed for the Federal Reserve's Supplementary Financing Program, launched in mid-September in a bid to support the ailing economy.

The US Treasury said Monday it would seek to borrow a record 550 billion dollars in the October-December period to help stabilize the financial sector hammered by the global credit crisis.

The fourth-quarter borrowing estimate was substantially higher than the 408 billion dollars announced in July, and is a record high for quarterly estimates, a Treasury official said.

In July the Treasury had estimated third-quarter borrowing at 171 billion dollars.