How Geithner Financed $5 Trillion in Deficit Spending

Over the past 3.5 years the Obama administration has overspent its budget by $1T to $1.5T each year in its efforts to keep the US economy from plunging into a financial abyss, one that could have been deeper than the Great Depression. Obama has largely been successful in this. We are not yet completely out of the woods (unemployment is still high, and the federal debt is looming), but our economy appears to among the healthiest of all of the industrialized nations.  And our financial institutions appear to be intact.

But, how was this feat pulled off? Who took on the $5T in debt accrued over the last 4 years? Below shows the biggest holders as of 2011, 4 years ago.

The above table was pulled together from numbers in this Yahoo article .  One thing this shows is that $6.3T of the debt (categories 1 and 2) was held by the federal government itself.  (another source with other numbers.)

The Yahoo article further says that this $6.3T has grown by $2.5T in the past decade. 
One might guess that about $1.5T in debt was taken on by our federal government over the past four years.

So, out of the $5T accrued over the last 4 years, this leaves $3.5T in debt taken on by somebody else. Who took on this debt with its lower-than-the-rate-of-inflation yields (< 2%/yr for 10 yr notes)?  And why?

My answer:  it was the big banks.    

In early 2009 Obama and Geithner called a meeting with the leaders of all the major banks. In the press conferences following the meeting, it looked like the bankers had been let off scott free – they were promised they would be supported so that they would not fail, no one was fired and no big sanctions were imposed (see part 3 Frontline PBS account of 2008-2012 global financial crisis). What I think happened behind the scenes in that meeting: Geithner, with Obama 100% on his side, told the banks that to get continued backing by the US government the banks would have to buy a lot of low yield treasuries over the next several years. They were told this was essential in order to finance the deficit spending that was needed for the government to keep the economy afloat. And the banks buy up of treasuries was essential also to keep the interest rates low - if rates rose much at all the federal government would be in severe straits just paying the interest on its debt.

With a big sigh of relief, the bankers happily signed on to this.

At the height of the financial crisis (2008), a number of overseas banks had also been propped up by the US government. Later, in 2009 I imagine they were offered the same deal, and they too happily bought into the proffered deal - or their governments did,

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Any other hypotheses out there?   Add your thoughts via the comments option below.