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Fed Eats Treasury
Historically the US Treasury Department has been
responsible for the Dollar policy and liability management (debt
issuance). Both of those responsibilities have been co-opted by Ben
Bernanke. That Treasury has let this happen speaks volumes
for the lack of leadership. In my opinion Treasury is allowing the Fed
to run wild while the systemic risks are rising.
responsible for the Dollar policy and liability management (debt
issuance). Both of those responsibilities have been co-opted by Ben
Bernanke. That Treasury has let this happen speaks volumes
for the lack of leadership. In my opinion Treasury is allowing the Fed
to run wild while the systemic risks are rising.
The issue of exchange rate policy is, I
think, clear-cut. There is a direct correlation between QE and dollar
weakness. A weak dollar is a primary goal of QE. A cheap dollar policy
will bring us the inflation that Bernanke keeps telling us we need. It will also make us a pariah. This comment from the German Finance Minister at the Korean G 20 says it all.
think, clear-cut. There is a direct correlation between QE and dollar
weakness. A weak dollar is a primary goal of QE. A cheap dollar policy
will bring us the inflation that Bernanke keeps telling us we need. It will also make us a pariah. This comment from the German Finance Minister at the Korean G 20 says it all.
“I
tried to make clear that I regard that (QE-2) as the wrong way to go.
An excessive, permanent increase in money is, in my view, an indirect manipulation of the exchange rate.”
The issue of liability management is not as clear
as is the case for FX policy. Let me try. Consider this chart of
existing treasury debt outstanding.
as is the case for FX policy. Let me try. Consider this chart of
existing treasury debt outstanding.
As Zero Hedge has been pointing out for weeks, there simply is not enough long-term bonds outstanding for the Fed to purchase.
QE-Lite commits the Fed to buy
Treasuries in an amount equal to the roll off of the MBS book from
QE-1. Between the low rate/refi’s, repurchases of mortgages in default
(20+%) and the normal turnover in homes a substantial portion of the
Fed’s MBS book will run out over the next 24 months. We could push $1
trillion just from that. Then there is good old QE-2 that is staring us
in the face. That number starts with $500b and goes easily to a
Trillion. A reasonable estimate for the amount of total Fed POMO buys
between now and 12/31/11 is $1.5 Trillion.
Treasuries in an amount equal to the roll off of the MBS book from
QE-1. Between the low rate/refi’s, repurchases of mortgages in default
(20+%) and the normal turnover in homes a substantial portion of the
Fed’s MBS book will run out over the next 24 months. We could push $1
trillion just from that. Then there is good old QE-2 that is staring us
in the face. That number starts with $500b and goes easily to a
Trillion. A reasonable estimate for the amount of total Fed POMO buys
between now and 12/31/11 is $1.5 Trillion.
With that estimate go back to the graph and tell me what are they going to buy? There are few choices:
(A) The Fed could buy 100% of all existing
issues from 2018 on. They could also buy up all of the scheduled new
issues for the next 14 months with a maturity greater than eight years.
That would come to the $1.5 trillion. This approach would be insane.
issues from 2018 on. They could also buy up all of the scheduled new
issues for the next 14 months with a maturity greater than eight years.
That would come to the $1.5 trillion. This approach would be insane.
The existence of a viable and liquid
long-term bond market is a cornerstone of America’s capital market.
Eliminating a substantial portion of the float for maturities ten years
and longer would have negative implications for liquidity for all
long-term debt issued globally. The US Treasury market has always been a
benchmark from which thousands of other credit instruments are spread
priced. Liquidity in Treasury issues is an essential ingredient for swap
and hedging pricing. A busted Treasury market is like putting sand in
all of the capital markets. Things will grind down. Liquidity will be
impacted.
long-term bond market is a cornerstone of America’s capital market.
Eliminating a substantial portion of the float for maturities ten years
and longer would have negative implications for liquidity for all
long-term debt issued globally. The US Treasury market has always been a
benchmark from which thousands of other credit instruments are spread
priced. Liquidity in Treasury issues is an essential ingredient for swap
and hedging pricing. A busted Treasury market is like putting sand in
all of the capital markets. Things will grind down. Liquidity will be
impacted.
(B) The Fed could buy all maturities such that their purchases approximated the average life of existing US debt. This would be supremely insane.
The problem is that the average maturity is just a bit over four years. Looking
again at the chart you will see that in order to achieve a balanced
purchase program the Fed would have to acquire hundreds of billions of
2, 3 and 4-year paper. Two problems:
again at the chart you will see that in order to achieve a balanced
purchase program the Fed would have to acquire hundreds of billions of
2, 3 and 4-year paper. Two problems:
(I) Interest
rates for these short maturities are already at historical low levels.
Further reductions would starve more savers and fatten bank income
statements. But they would do nothing for the housing market and the
unemployment rate.
rates for these short maturities are already at historical low levels.
Further reductions would starve more savers and fatten bank income
statements. But they would do nothing for the housing market and the
unemployment rate.
(II) What
happens in two years when $300b of bonds owned by the Fed come due? Is
Treasury forced to issue more debt to the public to pay off the Fed?
That would be an opportunity for the bond market to rape the taxpayers.
They would have the Fed and Treasury in their crosshairs. Keep in mind
that this conflict is not some time far off into the future. On the day
that QE-2 is completed it will be less than twelve months
more until the first maturities hit. What will inevitably happen is that
Bernanke will rush to the rescue and announce that he is rolling over
his holdings and will do what he has done with QE Lite. He will have
permanently expanded the Feds balance sheet. He will have no other
option but to do so. IMHO there is no greater systemic risk that the
nation faces. We will have been forced into a policy of perpetual QE. PRECISELY WHAT BERNANKE HAS PROMISED AGAIN AND AGAIN THAT HE WOULD NOT ALLOW.
happens in two years when $300b of bonds owned by the Fed come due? Is
Treasury forced to issue more debt to the public to pay off the Fed?
That would be an opportunity for the bond market to rape the taxpayers.
They would have the Fed and Treasury in their crosshairs. Keep in mind
that this conflict is not some time far off into the future. On the day
that QE-2 is completed it will be less than twelve months
more until the first maturities hit. What will inevitably happen is that
Bernanke will rush to the rescue and announce that he is rolling over
his holdings and will do what he has done with QE Lite. He will have
permanently expanded the Feds balance sheet. He will have no other
option but to do so. IMHO there is no greater systemic risk that the
nation faces. We will have been forced into a policy of perpetual QE. PRECISELY WHAT BERNANKE HAS PROMISED AGAIN AND AGAIN THAT HE WOULD NOT ALLOW.
We are getting dangerously close to a trade
war with our closest allies. The US weak dollar policy engineered by
Bernanke has global considerations beyond short-term economics. This is a
matter for the Executive Branch of government. Elected officials are
responsible for this critical policy matter. So far they have just looked the other way.
war with our closest allies. The US weak dollar policy engineered by
Bernanke has global considerations beyond short-term economics. This is a
matter for the Executive Branch of government. Elected officials are
responsible for this critical policy matter. So far they have just looked the other way.
Treasury is responsible to the people for maintaining viable capital markets. They
are mandated to minimize the risks associated with bunching of
maturities. Yet the Fed’s QE will clearly undermine their efforts. And
they have been silent these past few months. If they were looking out
for the best interest of all Americans they would have been yelling and
screaming that the long-term strategic interests of the US are not aligned with a short-term bet by the Fed.
are mandated to minimize the risks associated with bunching of
maturities. Yet the Fed’s QE will clearly undermine their efforts. And
they have been silent these past few months. If they were looking out
for the best interest of all Americans they would have been yelling and
screaming that the long-term strategic interests of the US are not aligned with a short-term bet by the Fed.
Bernanke has his foot so deep in his mouth
with QE that he can’t back off and he can’t win. If he comes with some
minimalist approach it will accomplish nothing, except disappointing all
those who think they own a free put. He could go the other way and give
us shock and awe. Thirty-six months later America will fall into a hole
that will take a very long time to dig out of. Either way, QE and the
Bernanke Fed will go down in history as one of the worst mistakes the
country has ever made. History will not be so kind to Geithner either.
As Treasury Secretary he ignored two critical obligations of his office.
We will all pay a big price.
with QE that he can’t back off and he can’t win. If he comes with some
minimalist approach it will accomplish nothing, except disappointing all
those who think they own a free put. He could go the other way and give
us shock and awe. Thirty-six months later America will fall into a hole
that will take a very long time to dig out of. Either way, QE and the
Bernanke Fed will go down in history as one of the worst mistakes the
country has ever made. History will not be so kind to Geithner either.
As Treasury Secretary he ignored two critical obligations of his office.
We will all pay a big price.
»
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Bernanke: we will buy all the gvt bonds available and force investors to speculate on stocks and corp. bonds. Reflate & inflate the problem away!
Leo, I appoligize in advance.We share a common platform and I am trying to be polite. But your comment is flat out stupid. You are too smart to believe that we can reflate our problems away. At somepoint (it may take a few years) you will look around at the caranage that will be around us and ask,"How did this disaster befall us?"
Mark my words Leo. QE-2 will go down in history as the worst monetary mistake ever made. It will wipe out our wealth. It will destroy your way of life. And you are cheering it on because you think you can make a buck buying risk assets.
There is much more to this world than stock prices. We are not in this for the next 3 or 4 months. America will have to live with this mistake for decades. Hundreds of millions will suffer. And you think it is a good thing. You have a narrow and twisted view of of what is "right".
Stop looking at your stock portfolio for a minute and consider what a disaster we are in for. I would suggest you read AEP at the Telegraph today. Another man who lines himself up against the foolishness that you think is our only salvation.
Get a life.
bk
I am firmly with Bruce on this one. For the Fed to exit QE, several things have to happen:
- pay interest on reserves. Between 700bn and 1tr, say at 5% means tax payers have to come up with 35-50bn to the banks to push up rates.
- massive repos with the PD's. They would have to have very healthy balance sheets. They don't and won't for a while.
- selling toxic assets. They can't, not unless there is a huge discount, which of course would have to be reflected in the bank's holdings. ooops.
Then, there is inflation premia in the market, alternatives for treasury holders and a whole slew of other problems.
Then there is timing and amount. All in all, more QE just seems to corner Ben. Besides, why it is needed? If banks don't want to lend or can't (because the borrower has no credit), it won't cause inflation. Jut a bigger plate of spaghetti to unravel.
Bubbles will be buying enough of the
10-30 part of the curve to drive long
term rates and 30 year mortgages down to
to 3% and take care of that pesky
housing inventory. Doesn't take much
QE to do it.
Web Bot info says >> Nov 8th -- --- -- thru Nov 11 th
some Big event will happen ... get ready...
...BLOG ACTIVITY ALERT...
...POSSIBLE FINANCIAL SHITSTORM AHEAD...
...EYES ONLY...
What is going on, and what will happen next week, is historic if nothing else. The Fed is the only actor, to the apparent detriment of the Treasury, simply because the Treasury is powerless to do anything at all at this point. Once the creation of money and the control of the currency was ceded to the Fed, this collision course was set.
Bruce is right: QE is more or less permanent. We have maxed out on the national credit card in a sense and now the means of financing the coninued operations of US Inc. has spilled over into the Fed - printing instead of taxing real growth. And yes, this will mean the purchase of virtually all new issuance of Treasuries, and it will be done with a straight face, as if nothing is wrong. The Fed, unlike the Treasury, is also the only Yucca Mountain repository available to safely stash all those toxic MBSs beyond the financial event horizon so the TBTFs can continue to pretend to be solvent.
Ned's Rule: A QE program must be publicly proclaimed to be defined and contained; it cannot be open-ended as to both amount and time. If it violates this rule, we risk currency failure. The only restraints left once Ned's Rule is abrogated is that this is the reserve currency, it is held widely across the globe, and it is the medium of exchange to acquire petroleum. But breaking Ned's Rule will test those limits and lead to great volatility, as lesser players make mistakes with their bets. A break in oil pricing would be a tell, although the quid pro quo promise to militarily defend the Saudi family's iron grip on control is powerful glue to hold this together.
As Lawrence Kotlikoff recently said, "Let's get real, the United States is bankrupt."
Bruce, the question of what will be done with all of the residential title churn, from a variety of perspectives is timely. It has been suggested, ever since '08 by some, that all existing RRE be consolidated and then rewritten. With current turnover of title in that space sounds like it might be a better plan then simply churning MBS. Thoughts? Regardless, it seems like just last month we were hearing about how these holdings would be closed upon terminal event. Now look at how the landscape has changed, from this marvelous micro example to markets broadly since '07. I cannot but think that we haven't seen anything yet when it comes to fed/treasury interference with what remains of collective market interactions.
So Bruce, in summary:
- flatten the yield curve, depreciate the USD (mostly against EUR)
In effect, tell consumers "you ain't gonna get this low rate opportunity again, so come on in and borrow!!" Some will , especially the well off you have the purchasing power and the bet is THEY will refi their mortgages and hit the malls.
In effect, tell the banks "we know you still have garbage on or off your balance sheets, you are on life support for several years to come, enjoy the arbitrage freebie while you can so you can rebuild your balance sheets"
In effect, tell anyone selling USD based goods and services "here is your lucky day." Not only for the roughly $1.5trillion in exports, but that is peanuts: about 70% of ALL global trade is denominated in USD - think oil&gas. We should have every mofo country kissing Ben's feet.
QE will benefit the banks the most, as the reserves will remain within the banking system to get the banks off life support. Some will trickle to the solvent consumers, and the depreciated dollar will help exporters and anyone selling in USD. There is no inflation here. not yet. Not until the banks can crazily lend again and the consumer has paid off his debts. At this rate, that's 3-5 years minimum.
Agree, but at what point do oil sellers disagree that their product should not be sold in reference to a depreciating currency? It is after all, a nonrenewable resource and that is the lesson of peak oil. As supply decreases, price goes up, not down. I suppose this has already been cleared with the Saudis - perhaps we regularly ship them gold bars to make up for the difference. There must be something in place to even up the accounts as QE goes forward.
Ned, Saudi is a dollarized economy, so no worries. This was set up many decades ago. Sure their dollar revenues will buy them fewer Mercedes, but it really isn't an issue. Go to Saudi and you see American cars and products everywhere. It is part of the quid pro quo. Their imports are mostly USD denominated. Oh yeah, and wasn't there a huge U.S. arms sale to the Saudi's the other day?
50% of all Japanese exports are in USD. Only Germany is really bummed out about Ben. Their exports outside of Eurozone are almost all EUR denominated.
USD is still the reserve currency. Got a better alternative?
Is there any way bernanke can be removed from office other than just waiting until his term expires? Does the president or congress have the authority?
Yes. But it involves an act by Ann Archy. Several appearances of Ann Archy would go a very long way to turning this country back to the people who have some common sense. They in turn would recognize that the disUnited States cannot be governed but only corruptly, with monstrous results, serving only a few at the top, and ridding ourselves of lobbyists who write our laws tailored to Special interest groups.
The new government would dismantle the 51 states, (can't leave out Israel) and reassemble it another fashion, by restricting its heavy handed manipulation, choosing who succeeds and who fails, including a greatly modified defense department, and overseeing genuine national interests which would remove the Education Secretary, health, and welfare from its purview.
Naturally these things need to be looked after but a regional alliance would be preferable to what we have now. e.g. it's a lot easier and far more effective to organize a group of activists to protest and turn back some inept and bought politician in a region with 6 million folk than 360,000,000 of them spread out over millions of square miles who don't much give a shit about each other.
.
In my experience these types of people will Never acknowledge defeat. No matter how bad the outcomes. The only way things will change is to get a new set of folks in there.
Simple question: What would it take to abandon the current monetary philosophy? I mean - what would it take for Them to acknowledge that their theories dont work, that its all been a collosal failure?
If the answer is nothing. ie. no matter what the outcomes are they will continue to stay in business, keep doing their thing ... then I would suggest that their economic philosophies are more in the realm of religious belief.
QE2 designed to devour all Treasuries held in foreign hands. The carrot is a willing buyer. The stick is a tanking dollar. The prize is financial sovereignty. The cost is (i) impoverishment of the populace (ii) pariah status of US.
First time, long time. But a thought occurred to me, while reading this: What if the Fed just bought every single MBS out there? I'd venture pretty much every mortgage in america is in SOME MBS SOMEWHERE. If the fed did this, wouldn't this be a huge transfer of power, since our government would effectively own every single house in america. Not that they don't already thru the GSEs, but that would be supremely insane.
"once the fed owns all the treauries the fed will "forgive" the treasury of having to repay them and the us will be debt free."
I'm seeing a number of threads on the Internet recently suggesting a "jubilee" scenario. Perhaps, but consider the full implications of what you advocate.
Pull a buck out of your pocket and actually read the writing on it.
It says "federal reserve note". What it really means whether you realize it or not is that it is a unit of DEBT, Not a unit of wealth (such as an ounce of gold). Nope, its Debt tied cheek to jowl with the US of A Government that vouched to back it (you know.... that "full faith & credit" thing ... excuse me while I vomit.
So, to all who advocate default of debt ... be prepared for its consequences in their entirety. USD...worthless. Treasuries...worthless. And all the pension/bond funds invested in US Gov holdings, why they'd be --- S... out of luck. Middle East Oil Producers... fat chance they'd sell any more oil unless it was for bonafide pure GOLD.
Now IF that's what it takes to change the system.... then sure, I'm in.
Just make no mistake...it'll be a "bumpy" ride for a time in the aftermath of this.
So, to all who advocate default of debt...
It's not about advocacy, it's about reality. The US is insolvent.
http://www.financialsensearchive.com/fsu/editorials/martenson/2006/1217....
The debt cannot be paid back. It won't be paid back.
Bernanke has said that perhaps it might be good to increase the inflation rate by a percent or two.
And all sorts of commentators on the internet have postulated QE2 purchases of $1T, $2T, $4T, $100B/month, and so on. Such huge purchases by the Fed would cause massive inflation, far greater than the 1% or 2% that Bernanke says he wants. (That is unless the money from the purchases goes into excess reserves as it did in QE1). So we have a big disconnect here.
Maybe we should just wait to see what QE2 really is before we start making predictions about what it is going to do. Perhaps it will take the form of more QE1 style asset purchases from banks, plus a much smaller component of Treasury purchases on the open market in order to boost the inflation rate a bit.
Maybe we should just wait to see what QE2 really is before we start making predictions about what it is going to do.
Maybe the Fed should define what QE2 really is and whether or not it is Constitutionally authorized to carry it out before it actually does. Where are the fucking adults in this country?
During the First Depression someone came up with a Cat and Rat Ranch. It went like this: the cats would eat the rats, the rats would eat the cats and we’d get the skins for nothing!
Bruce thanks for the good read. No doubt about it Ben has a lot on his plate. It's obvious he is trying to accomplish more than one thing such as lower rates but I think the real nut is employment vs. the RMB. Without an improving job front nothing he does will/can be successful long term. If he can get China to abandon the peg he sees a possible floor in the employment picture. In the past this wouldn't even be a close call but US position today is not so sure. The RMB being pegged to the dollar is making Chinese goods cheaper relative to other Asian countries. While other Asian trading partners are displeased with us and our QE they must also be harboring some of the same towards China. This additional leverage would not be lost on Ben. Such a revaluation would also give the Chinese quite a haircut on their dollar denominated holdings as well as improve the position of the other Asian trading partners (and the rest of the world) vs. the RMB. There is no doubt in that the US is trying to "manage" the dollar lower for multiple andvantages but I have to wonder to what unintended consequences we will be treated to upon the unveiling of QE2. "Grateful" above mentioned driving the long term rates lower. In order to get that cramdown you'd have to wonder where the 30 yr would be to achieve that? Below 2%? So under what scenario would/could that happen? Policy errors from any quarter provide dangerous waters for all swimmers. Ben can't possibly believe that there won't be swift response to anything sizeable. The degree and fevor that response might generate has me worried. And now all ZHers go forth and pour yourselves another. If we keep pouring till the 3rd we won't feel a thing!!!
once the fed owns all the treauries the fed will "forgive" the treasury of having to repay them and the us will be debt free.
Whoa!
Among the possibilties:
The Fed will likely cancel QE lite, throwing a little curve into the total which will give them a little cover.
They could and probably have to agree to accept offers from FCB's of their Treasury holdings.
Until the foreclosure scandal and MBS uncertainty they could easily have started purchasing MBS again. That is fraught with PR problems now.
At this point there is a good probability that by canceling QE lite and committing to 'only' say $75bln a month the market will be, stupidly, disappointed which will perhaps set them back for a week or two to provide some political cover.
We begin with the proposition that the FED will never be able to sell the assets on its balance sheet back into the marketplace. If we accept that proposition as true, then it becomes clear what ultimately happens to those assets.
Thankyou for playing.
GG
Look at the bigger picture.
The Fed...as we all must know (or at least suspect in the back of our minds).. is merely a front for some ultra weathy few that pushed it into existence back in 1913 by buying off Congress (some things never change..it seems).
The underlying principals of the fed have (thru bribes...or worse) bought off Congress, Presidents (hello BO... this is aimed at YOU), and regulators (hello mary (9 mil pieces of silver) schapiro , & beaucrats hello eric (splineless) holder, ..this is aimed at YOU).
What to do about this.
Armed revolt ... ahhh, NO. The powers that be have hired too many hessians.
Hello homeland security goons .. this is aimed at YOU. Goons who merely wish to receive a paycheck and not think too hard (hello G gordon liddy...this is aimed at YOU). Plus they envision themselfs as a "rambo" type.. only, pathetically, they are following a false god.
Let's get back to the fed. Focus on the Fed. Repeat...focus on the FED!
Why, because (as Willie Sutton said) ..that is where the money is.
The Fed is the biggest SCAM in the UNIVERSE.
Think about it fellow US (& world) citizens. A private enity, shielded from any meaningful scrunity, that has a monopoly on the supply of cash & credit for the USA. It's the Ulimate scam. And it goes to a handfull of folks.
Hey people, educate yourselfs to the founding members of the Fed and where their decendants are now.
This focus on Ben Bernanke as the figure head of the fed is merely tabloid stuff. It's the OWNERS of the Fed that get the rewards. Presidents, Congress, regulators, MILITARY Brass, Intelligence Agencies ...are easily bought off. After all, most everyone has a price.
This is the sorry state of America today.
I say.. pull the plug and let it all tumble down.In the helter skelter of chaos & anarchy we stand a better chance than the oh so rigged status quo.
+100
The FED is a tool which allow the government to take more money from the sheeple than it can raise from selling bonds to investors and taxing everything it can. The owners of the FED do not make much $ directly from the FED ownership, as the stock pays 6% per annum, and 97% of the remaining FED earnings goes back to the Treasury, but the same cronnies enjoy the benefit of their relationship with the poilticians which favor big buiness. Without the FED the government would be harder for the Oligarchs to control. The FED is like their special key to the pocketbooks of the sheeple. First the government gets what it needs and then it takes care of it's Cronnies. Therein lies both the profit and the evil.
So, you say that the Fed is a tool of the government. Others say that the government is a tool of the Fed (or, more accurately, the owners of the Fed).
Neither is entirely correct in my estimation. If republicans and democrats are two wings of the same bird of prey, then the Fed is the beak and government the talons.
Focusing on one part or another of this large, dangerous raptor is sure to end in ruin - and ignores the obvious question: Who is the Falconer?
Classic WB7. You need to add Barry Obama as Princess Leah, it seems he is Bernanke's sex slave.
stop me if i'm wrong, "the fed wants to move everyone out further on the curve.." 10 year notes are yesterdays 5 year notes - 50 is yesterdays 40 - we all live longer, need longer term bonds....
now if Ben can push low rates further out on the curve he can do the cramdown on mortgage rates that his political sidecars desire.
"ye shall regret the day you don't have just as much debt as the system obliges you.."
The FED is screwing up the whole world...
Ron Paul is right...
Thanks for the excellent analysis, Bruce.
In my view, however, it is not possible to think the Fed so idiotic. These are very bright men, remember. Is it not possible to have arranged for other nations to buy US bonds in exchange for the USD having saved their asses...again?
There must be some quid pro quo on a ginormous scale going on behind the scenes.
The only reason the US would have to "save their asses" is because of them buying bad US investments old by corrupt US banks who created them via Mortgage Fraud. Nothing like being saved by the man who threw you off the cliff in the first place.
Indeed, that is the case.
Bernanke is flat out insane. He started QE at $1.5 trillion and cannot stop, so QE2 at $1.0 trillion is now probable, but he will not be able to stop there, either. Bernanke has to keep upping the ante or the economy will come crashing down, much worse than if we had no QE or QE2. Bernanke is a fraud, who knows nothing practical about the economy, and is leading us into perdition!
I agree, they would essentially have to soak up not only what little of the 10 year and older bonds but also the 2 years and on. We are in a liquidity trap which was done in order to stop a deflationary spiral and it is failing. They are doing everything they can to stop the US from having to announce severe austerity programs.
Nice piece, Bruce. Geithener's Gotta Go
did anyone think a failed liar would provide leadership?....geithner has failed spectacularly at everything to which he has put his hand.....whether the asian currency crisis of the 1990s or the nyfrb or doing his taxes....he is a liar and a loser.
And Zero Hedge has been WRONG EVERY TIME they have "pointed this out".
If you actually read Tyler's piece on this you will find that it includes an ASSUMPTION that the Fed can only buy 35% of what's available in a maturity space.
There's simply no reason to believe that is true and the assumption is based, so far as I can see, on nothing more than conventional wisdom.
Also, I'd love to understand how buying everything up hurts the liquidity for it.
The 35% rule is policy that the Fed voted for itself. In addition, the Fed recently affirmed that it is their policy and they plan to limit purchases to 35%.
Having said that, the Fed could meet at any time and change its rules any time. It's quite possible they could do that, but it seems unlikely to happen very soon.
But I think we can see that when you are talking these massive numbers of QE there just isn't enough stuff to buy to keep the 35% rule going? Unless it is all MBSs, hence Gross/Pimpco loading up. And that goes with my Yucca Mountain argument below. I say they do both: Treasuries and MBSs. Maybe we should think outside of the box: what else would they announce they are buying. And, by the way, QE lite will continue as a permanent feature "For an extended period" to maintain the New and Improved Fed Balance Sheet.
Are you joking? If the Fed buys everything, there are few, if any, bonds trading. That's the very definition of "no liquidity". Liquidity is all about ease of exchanging a particular asset (usually monetary) into a real asset, or at least an alternative monetary asset which can subsequently be used to acquire a real asset.
As for the other point, the total new debt issuance (ex rollovers) of the federal government next year is in the $1.2T or $1.3T range. Only some of that is long-dated. They've been moving increasingly towards short-maturity debt. The lack of available long-term bonds to buy has nothing to do with the self-imposed SOMA restrictions. It's a given that they'll lift that.
Possibly a retarded question, but why would the Fed have to buy new treasury issues in order to acheive what Bernanke is after?