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The Fed's UST-POMO Pyramid Scheme Exposed

Tyler Durden's picture


In a brilliant piece of investigative reporting, Chris Martenson (original article here) has uncovered that the Fed, merely a week after issuing $28 billion in 7 year bonds (which Zero Hedge discussed previously) via its puppet, the US Treasury, of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases. This is undisputed monetization removed simply via one primary dealer and less than 5 days of temporal separation in order to leave no easy trace. As Martenson points out:

"A more honest and open approach would have been for the Fed to simply
buy them outright at the auction but this way, using "primary dealers"
and "POMOs" and all these other extra steps the basic fact that the Fed
is openly monetizing US government debt is effectively hidden from a
not-too-terribly inquisitive US press and public."

The question is did the Fed implicitly tell the primary dealers they are merely holding the treasuries for a flip, and that it would acquire them immediately. Absent this $4.8 billion in effectively monetized bonds, what would the Bid To Cover have been for the primaries? Would this have been the second practically failed auction for USTs after the deplorable 5 year auction results a day prior? One wonders if there would have been 62% indirect interest in these bonds (which the day before had a measly 32.5% indirect bid) if the purchasers were aware of the Fed's immediate prompt monetization of a large part of the directs' balance.

It is truly a sad state of affairs when the Fed has to manipulate public and media perception in this way, and has to cover up for the complete lack of interest in US Treasuries.

Here is the evidence Martenson dug up:

Martenson's conclusion needs no elaboration:

"The speed of the shell game is accelerating.

This immediate repurchase of newly auction bonds by the Fed tells us
that demand for these bonds is not nearly as high as advertised, and
that things are not quite as strong as represented.

And oh, by the way, don't expect any stock market weakness while so
many billions are being shoveled out the Fed and into the pockets of
the primary dealers.  They'll have to do something with all that freshly minted  cash....."

Zero Hedge salutes CM for this brilliant piece of sleuthing: now if only the MSM would have the guts to demonstrate the pyramid scheme that the US Bond and Equity markets have become.


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Thu, 08/06/2009 - 16:25 | 28110 TumblingDice
Thu, 08/06/2009 - 17:08 | 28230 Tyler Durden
Tyler Durden's picture

Fair point. Although Treasury -> Fed = Monetization...  that's the bottom line.

Thu, 08/06/2009 - 23:02 | 28745 molecool
molecool's picture

The inherent intent is obfuscation Andy.

Fri, 08/07/2009 - 01:56 | 28828 Gordon_Gekko
Gordon_Gekko's picture


Thu, 08/06/2009 - 17:29 | 28272 Project Mayhem
Project Mayhem's picture

Let me quote on the definitive text on this subject -- from the book "Worldwide Evil and Misery" --



'In his speech before the Senate, on December 15, 1987, Senator Jesse Helms said: "The principle instrument of the control over the American economy and money is the Federal Reserve System."  The Federal Reserve has a monopoly over the expenditure of the dollar as a world currency and determining the interest rate, and it disposes of a lot more monopolies.   How does the Federal Reserve Bank operate?



Suppose the United States government needs a couple of billion dollars for its expenses that cannot be paid with taxes income.  At that moment it addresses the Federal Reserve Board.  The government bonds for the needed billion dollars are printed in the Bureau of Printing and Engraving.  After these bonds are handed over to the bankers of the Federal Reserve, the board grants a loan to the government in the amount of the bond issue.  The Federal Reserve draws interest from the government from the day the bonds are delivered.  From that day on the government is allowed to draw checks against the Federal Reserve for the amount of the bonds. 


What are the consequences of this incredible transaction?  The government simply saddles the people with a billion dollar debt to the Federal Reserve Bank, apart from the interest on interest that also has to be paid by "ordinary people".


When the Federal Reserve needs new, or more, currency to transact its business, it takes the bonds over to the United States Treasury for safekeeping and asks the Treasury Department for the billions of dollars of new currency it needs.  The bank is accomodated on the condition that it will pay the printing bill.  It only pays for the expenditure costs of the banknotes, which are no more than a mere 500 dollars for ink and paper!  It is understood that the Bank need not relinquish the bonds it holds, but will continue to collect interest on them.  The Bank then loans the newly printed currency into circulation to anyone who can provide it with satisfactory collateral.'


"Worldwide Evil and Misery" by Robin de Ruiter

Chapter 8 : One World Financial System




I typed that up from scratch Tyler -- I have up printed one 'beer IOU', which will be deposited at ZH central clearing.  In exchange I will kite a check in the amount of the beer outstanding and loan the new beer into circulation.... and away we go....


Thu, 08/06/2009 - 17:39 | 28310 TumblingDice
TumblingDice's picture

It boggles the mind how the "United States Note", issued directly from the Treasury, conceived by arguably the greatest US President in history, having track record of capability to handle debt and promote growth at the same time and not based on ever expanding debt was tossed aside in favor of the "Federal Reserve Note", the most leverage based currency ever created.

Thu, 08/06/2009 - 18:27 | 28404 Fish Gone Bad
Thu, 08/06/2009 - 18:51 | 28465 Project Mayhem
Project Mayhem's picture


I just made some suitably creepy Treasury Dept artwork



Thu, 08/06/2009 - 22:31 | 28719 Bob
Bob's picture

Is that cotton, roses or what??

Thu, 08/06/2009 - 22:43 | 28732 Project Mayhem
Project Mayhem's picture

its the reverse side of the treasury building.  roses i think.  but i sucked all the color out -- just like the US Treasury and Federal Reserve have sucked the lifeblood out of the economy

Thu, 08/06/2009 - 18:20 | 28384 Anonymous
Anonymous's picture

Ouch . That's a stupid statement to make in this case unless you meant to say INCREASEs in Fed BS through purchase of Treas = Monetizaion. I'm not sure that's the case here.

Lay off the Red Bull for a minute and research a bit before hitting the post button.

Fri, 08/07/2009 - 01:33 | 28816 agrotera
agrotera's picture


Fri, 08/07/2009 - 01:17 | 28809 agrotera
agrotera's picture

Andy, Andy, Andy, what you say is true, BUT, we all know who TELLS the US Treasury what to do -- task master and big brother puppetmaster of all elected officials, the privately held Federal Reserve Corp.,  Monopoly,Cartel.

Thu, 08/06/2009 - 19:04 | 28504 Anonymous
Anonymous's picture

Hey that's a green shoot! The green shoot of monetization and hyper destruction

Thu, 08/06/2009 - 23:06 | 28746 molecool
molecool's picture

FYI - this schedule is updated every Wednesday afternoon. If you short on those days just hedge yourself around 2:00pm after the obligatory faux drop and you'll do fine.

Thu, 08/06/2009 - 16:26 | 28112 Project Mayhem
Project Mayhem's picture

wow, this was a nice catch.

Thu, 08/06/2009 - 17:45 | 28321 ghostfaceinvestah
ghostfaceinvestah's picture

agreed, very nice catch.

Thu, 08/06/2009 - 18:04 | 28354 janchup
janchup's picture

Nice catch but the fish carries an ugly message.

Thu, 08/06/2009 - 20:28 | 28618 Anonymous
Anonymous's picture

One thing I'm not clear on is how this helps the stock market. The transfer of money is effectively from the Fed to Treasury. Goldman starts with a billion, gives the billion to treasury, then the Fed gives Goldman it's billion back. Goldman doesn't wind up with any more money than they started with -- Treasury does. Or am I missing something?

Thu, 08/06/2009 - 21:03 | 28641 Anonymous
Anonymous's picture

GS gets a cut for their trouble, which they then use to pump the market

Thu, 08/06/2009 - 16:28 | 28119 phaesed
phaesed's picture

They've also purchased a few of the 30 years, but at least they waited a full month for those.

Thu, 08/06/2009 - 16:33 | 28140 Danz Gambit
Danz Gambit's picture

We, the citizens of the United States must demand, not ask, that the Federal Reserve be immediately and honestly audited.

Whatever it takes.


Thu, 08/06/2009 - 17:11 | 28235 Anonymous
Anonymous's picture

I'd settle for citizens demanding that the FED be utterly and entirely abolished.

Thu, 08/06/2009 - 18:03 | 28352 Anonymous
Anonymous's picture

One shall beget the other.

Thu, 08/06/2009 - 16:36 | 28147 waterdog
waterdog's picture

I hate to read about stuff like this. I do not scare easily but, this type of lying by our government is beyond the call of duty and it scares the bejeeses out of me.

Thu, 08/06/2009 - 17:25 | 28266 Anonymous
Anonymous's picture

It should.

2009 will be the fist fuck Christmas. Don't shop early unless you are buying storable provisions and ammo.

Thu, 08/06/2009 - 19:22 | 28529 Anonymous
Anonymous's picture

Head for the hills! God you people are fucking bat-shit crazy on this site.

Thu, 08/06/2009 - 20:40 | 28627 Anonymous
Anonymous's picture

Considering that I've been called bat-shit crazy for two decades talking about all these things by people like you who then crawl back five years later for an I TOLD YOU SO, I must say that your advice for heading for the hills--while hyperbolic--is more sage than you can possibly know until it is too late.

Fri, 08/07/2009 - 07:57 | 28883 Anonymous
Anonymous's picture

look, if you dont like what you read here do not do so. get back to buying more crap.

Thu, 08/06/2009 - 16:36 | 28148 robbonds
robbonds's picture

not sure why this is a big deal..everyone knew the auction and the buy backs were coming..public info...the fed announces the maturities they will buy ahead of time and ofcourse its always from the primaries - who are obligated to bid in the auctions...the market could have been pushed either way resulting in either gains or losses..did the primarys hedge their auction buys by selling similar maturities?

not convinced this means much....

Thu, 08/06/2009 - 16:48 | 28177 waterdog
waterdog's picture

Do you mean that primaries are required to bid on junk that no one in their right mind would own to save the government?

Thu, 08/06/2009 - 16:55 | 28196 Anonymous
Anonymous's picture

Yes they have to. Part of being a primary dealer.

Thu, 08/06/2009 - 17:00 | 28212 RatherBFlying
RatherBFlying's picture

No, they don't have to, and they wouldn't if they thought they would have trouble unloading the junk. Ask Jimmy Carter about this.

Thu, 08/06/2009 - 17:26 | 28269 Anonymous
Anonymous's picture

Thank you.

Thu, 08/06/2009 - 16:58 | 28206 Anonymous
Anonymous's picture

Yes. The only way out is to stop being a primary dealer. As long as the Treasury = Goldman it doesn't much matter anyway, the Treasury IS a primary dealer.

Thu, 08/06/2009 - 17:05 | 28222 waterdog
waterdog's picture

Ok, entry to diary,

Another reason today to kill women.....

Thu, 08/06/2009 - 17:02 | 28217 Anonymous
Anonymous's picture

"Primary dealers do business directly with the Fed and are required to bid at Treasury auctions."

Thu, 08/06/2009 - 17:45 | 28324 Anonymous
Anonymous's picture

they are required to bid. the bids aren't required to be any good.

Thu, 08/06/2009 - 17:11 | 28236 Anonymous
Anonymous's picture

I would like to hear the other side to this also.

Thu, 08/06/2009 - 20:42 | 28628 Anonymous
Anonymous's picture

The other side of this is that "it isn't happening, HEY LOOK there's another story about Michael Jackson."

Fri, 08/07/2009 - 02:07 | 28830 agrotera
agrotera's picture

this isn't the other side that you were looking for, but here is another side of this story:

The fed has backed 23TRILLION as a result of the meltdown in the financial markets.  Of this 23TRILLION, 9 TRILLION is flat out missing, watch:

In the fall of 2008, Lehman Brothers, Goldman Sachs, Morgan Stanley, Merrill Lynch, and Citi were all going down.  Lehman asked for a 6BILLION bridge loan, and bank holding status, and got neither--they went down, the other firms and many affiliated firms of the others that didn't do down "won" the Lehman bet, and two days later, AIG got 85Billion in a bridge loan (now 185BILLION) and that money went in the front door of AIG, and out the back to many of the other parties that were left to live, namely 13Billion to receivership for AIG, just flat out GIVEN the money.

That week, Paulson and Bernake told the world that if the US didn't pass the TARP bill, the world would end as we know took three weeks of lobbying for this to happen, and the weekend after it passed, paulson took the money and passed it out in a secret meeting at the treasury to 9 "sacred" "toobigtofail" banks.

Paulson and Bernake DIDNT ask for authority to unwind the above listed "toobigtofail" firms--if they had been honest with our country, they would have asked for this authority--instead of three weeks of lobbying, this would have taken ONE DAY OF HONESTY in front of Congress.  Then they should have asked to close down the markets for a week or three while they worked to unwind these failed entities, and allow the system to absorb the pieces of these companies the way that could have allowed growth and renewal--instead these corrupt entities are protected "as if" they are sacred, and indeed we the people are brainwashed to believe they are "sacred", instead of evil and failed for having committed unbridled fraud.

Now, back to the Treasury and the Fed, because the above agenda (that these entities are sacred) has mortgaged our future because we have poured money into failed entities, just to feed the monster in charge, that is, the FED.

The world is our creditor. We saw a pause in the rhetoric of the rest of the world talking about the dangers of the money printing by the US and how this may cause devaluation of the dollar, when Obama came into office--but that ended the week that Obama and Geithner declared their allegiance to the Paulson/Bernake plan. 

Now that the world knows that our country is supporting a FAILED, and corrupt system, by printing money which was borrowed from the world, to pour into these failed corrupted entities, the world has now decided to move away from the dollar.

This scheme of monetizing the debt is just a perpetuation of the same scheme that we were subject to last fall--a bank heist, ponzi scheme, and it cannot succeed. I am very sad for my country, but, as long as i have a breath, i won't give up hope that this crime will be exposed so we can have our country back, and we can rebuild our country's integrity which will then be reflected in confidence in our country's currency.

But, aside from the fact that our county has been ROBBED by these banks led by the Fed, the most horrible part of all of this is the real and present danger our country is in for having used up our credit to enact a bankheist.

The financial crisis is causing havok in people's lives, and I truly believe that the money printing would have been tolerated somehow, by our creditors, if it had been for a "righteous" reason--but, no way is a bankheist righteous.

By the way, all the money printed and put into the system hasn't gone to do anything but keep alive these corrupted entites--like throwing money into a black hole--and the idea of the Fed looking for an exit strategy is just another joke on all of us.

Thu, 08/06/2009 - 17:49 | 28327 Anonymous
Anonymous's picture

Exactly - this doesn't mean anything and there was really no catch here!

All of this information is publicly available and it is no secret that the Fed is using quantitative easing.

Sensationalism at its worst is what is going on here...

In every transaction, you need to analyze the stake holders and Zero Hedge is just trying to create traffic through sensationalism so it can pay its bills.

Sorry but that is the truth!

Thu, 08/06/2009 - 18:24 | 28392 ghostfaceinvestah
ghostfaceinvestah's picture

i totally disagree.  i work in the bond market, and knew the anxiety last week over that 7 year auction.  and then it went sooo well, what a relief.

what a joke.

Thu, 08/06/2009 - 18:33 | 28416 Anonymous
Anonymous's picture

is the FED being honest? did you you catch that? does not mean anything. right!

Fri, 08/07/2009 - 02:15 | 28834 agrotera
agrotera's picture

Hey Marla and Tyler--the Fed's x-enron lobbyist has sent out shills in full force to your site to try to prevent new readers from coming back--too bad their scumbag agenda is crumbling and that their lies are as clear as a bell!!!

Sun, 04/04/2010 - 22:29 | 286104 hbjork1
hbjork1's picture

Anonymous: /328327

What .."is going on here..." is a collection of individual people posting  "Anonymous"ly on an internet blog.  If someone lies or defames another, thereby doing damage, they can be sued. 

If you find a statement that is not true, challenge it with references or at least a true assertion.  No one here is suggesting action that would be a violation of law.  What they are asserting is that irresponsible actions are being taken by members of the Treasury and the Fed.  We know from history that govenrments do make mistakes, sometimes disasterous.

Get a grip man.  "Only your friends tell you when you have BO." 

Fri, 08/07/2009 - 10:53 | 29040 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

When the buyback comes so close to issue, isn't that just basically a direct injection of money into the system (aka monetization)?  It's as if the issue was for the express purpose of doing that...


Thu, 08/06/2009 - 16:37 | 28150 rD2.0
rD2.0's picture

Bernanke has lost his mind.

Charlie Gasparino has Zero Intelligence, so he won't do any investigative reporting. He is too busy taking lap dances in strip clubs paid by his Goldman Sachs pals

Thu, 08/06/2009 - 16:40 | 28158 Alexander Supertramp
Alexander Supertramp's picture

"Wall Street banks and lawyers could collect nearly $1 billion in fees from the New York Fed and AIG to help manage and break apart the troubled insurer, according to a Wall Street Journal analysis."

Thu, 08/06/2009 - 16:41 | 28159 PragmaticIdealist
PragmaticIdealist's picture

We all knew this had to happen. Decades of profligance, over-leverage, consumption, financed consumption from China, wasteful investments leading to asset bubbles, a massive overgrowth of a financial sector, a vanishing manufacturing base and hedge funds, traders and other fraudulent market players extracting profits has to take its toll some time.

It's either sneaky debt monetization attempts or debt default from here on in.

Thu, 08/06/2009 - 16:42 | 28161 SV
SV's picture

Tyler - Someone needs to pair up this revolving door with why major players like Dresdner Kleinwort Securities exited stage left in June. If I were a betting man, the Fed came to some on planning and execution, only when they said "no" they were told they would be shown the door (one way or another).  No different than how they treated Ken Lewis.

Thu, 08/06/2009 - 16:50 | 28186 Anonymous
Anonymous's picture

Or the Fed came to them and they realized what is up with treasuries, and they wanted to get the heck away from that business fast.

Thu, 08/06/2009 - 19:53 | 28582 Anonymous
Anonymous's picture

That was probably due to Desdner Kleinwort being sold by Allianz.

"Commerzbank to buy Dresdner, axe 9,000 jobs"

Thu, 08/06/2009 - 16:42 | 28162 trillion_dollar...
trillion_dollar_deficit's picture

Its alright guys. Everyone calm down. Stuff like this doesn't matter. Pax Americana is here. No worries.

Thu, 08/06/2009 - 16:44 | 28168 Anonymous
Anonymous's picture

Pax Americana? The dragon will devour the eagle. It's
not called the Chinese century for nothing.

Thu, 08/06/2009 - 17:24 | 28264 phaesed
phaesed's picture

It might, but they're coming down with us first. I don't know how they can become the world leader while we're no longer buying the shit they produce.... Add that on top of the idea that they havent massively inflated their currency while they kept theirs on par with ours and even then it was undervalued.

Fri, 08/07/2009 - 00:55 | 28797 Anonymous
Anonymous's picture

"I don't know how they can become the world leader while we're no longer buying the shit they produce."

Does anyone know what percentage of China's GDP are exports to the U.S.?

Fri, 08/07/2009 - 01:43 | 28821 aldousd
aldousd's picture

well, rough back of the envelope crappy wikipedia numbers from 2006 


China's 2006 GDP was US$2.7 trillion

US trade deficit to China in  2006 was $232.5 billion = 8.6% of Chinese GDP that year

19.9% of their total GDP was created by exports in 2006 ($537 billion)

So US trade deficit with China was roughly 9% of their GDP, and nearly half the total trade surplus China had that year.  

That means we matter, but whether or not 9% of the economy can kill the country, lets not be ridiculous. If you tank their reserves, or the rest of the world falls apart, and nothing comes to replace the 'pulled forward demand' imparted by the vigorous stimulus the government there is so proud of, then they will hurt too, just later than everyone else.


I don't have more recent data, and admittedly I had to do math with the wiki data. I'm sure there is better info out there somewhere, but I wanted to give a quick and dirty, and this was both.

edit: I have already reported myself to

Thu, 08/06/2009 - 16:44 | 28166 Anonymous
Anonymous's picture

can you imagine what would be going on if we didnt have an internet or bloggers to investigate this shit? jesus christ. its bad enough as it is if they could get away with it it'd be an outright disaster.

Thu, 08/06/2009 - 16:55 | 28195 Bobby Fischer36
Bobby Fischer36's picture


Hopefully information will continue to flow free but it appears things could change.

 OBama and Cyber Czar

Ron Paul C Span videos pulled from youtube!



Thu, 08/06/2009 - 17:33 | 28294 Bob
Bob's picture

WTF, WTF, WTF!  What is the appropriate role of government in "protecting private networks"?  Unfuckingbelievable. 

Thu, 08/06/2009 - 18:04 | 28355 Anonymous
Anonymous's picture

Newsflash: most of what you think of as the internet is made up of privately owned fiber-optic backbones.

You can't have national cyber-security (which is clearly needed after the recent DNS attacks) without protecting those private networks.

Stop being hysterical.

What you should care about is net neutrality.

Thu, 08/06/2009 - 19:34 | 28542 Bob
Bob's picture

Thanks, I needed that.  Does it not remain to be seen how far the gov may extend it's jurisdiction over "private" networks" as it defines them?

Thu, 08/06/2009 - 17:37 | 28305 phaesed
phaesed's picture

I just read that article as well, you got to be fucking kidding me.... we're about to hit the breaking point quickly.

Fri, 08/07/2009 - 15:30 | 29598 Ruth
Ruth's picture

Are they going to make all the senate and congress sites take their youtubes down, as well as Elizabeth Warren's? 

Thu, 08/06/2009 - 16:47 | 28171 MinnesotaNice
MinnesotaNice's picture

You just can't permanently fix things with more debt... whether you are a consumer, business, or the government... the debt has to be paid back... it is a shell game and I think even the government has lost track of under which shell they put the ball.

Thu, 08/06/2009 - 16:47 | 28173 Anonymous
Anonymous's picture

:reported: to

Thu, 08/06/2009 - 16:48 | 28178 MinnesotaNice
MinnesotaNice's picture

Thank god we have one good citizen out there :=) 

Thu, 08/06/2009 - 16:49 | 28183 Project Mayhem
Project Mayhem's picture

I was considering sending a picture of a flag to  Is that how this is supposed to work?

Thu, 08/06/2009 - 17:13 | 28242 Anonymous
Anonymous's picture

It could, I've been diligently reporting all lies and misinformation on the internet. I don't think should be limited to only "fishy" health care issues. I think it should be a place where good citizens can report anything that has not been officially recognized as factual by the Obama administration.

Now imagine it is 1933 and you live in Germany.

Thu, 08/06/2009 - 17:28 | 28275 phaesed
phaesed's picture

Actual it's 1929 Germany... 4 years later they had the hyper inflation you speak of.

Fri, 08/07/2009 - 02:56 | 28846 Gunther
Gunther's picture

phaesed, the inflation in Germany as 1923. Hitler came to power 1933.

Thu, 08/06/2009 - 17:38 | 28291 Project Mayhem
Project Mayhem's picture

Thank you for calling the totalitarian replay hotline.  Please listen to the following menu, and select an option.


Press 1 for "March on Rome"


Press 2 for "Night of the Long Knives"


Press 0 to be transferred to an operator.


Thu, 08/06/2009 - 17:39 | 28311 phaesed
phaesed's picture

Sorry, I'm using a rotary phone... I'm afraid of punch dial and cell phones these days.

Thu, 08/06/2009 - 16:49 | 28181 glenlloyd
glenlloyd's picture

you know they hate that information flows so rapidly now with internet. They can't be nearly as sneaky as they have been in the past, it isn't possible.

i for one welcome our new cash printing overlords!

Thu, 08/06/2009 - 20:00 | 28594 Apocalypse Now
Apocalypse Now's picture

They're not new but it rhymes.

Thu, 08/06/2009 - 16:49 | 28182 Anonymous
Thu, 08/06/2009 - 16:49 | 28184 Anonymous
Anonymous's picture

It's gonna be interesting when the bond market throws up and dumps 50 trillion of this crap in the FED's lap.
Monetize that mofo.

Thu, 08/06/2009 - 16:59 | 28187 D.O.D.
D.O.D.'s picture

I called and informed my representative, the one that is concerned about politicizing monetary policy and doesn't want to audit the fed.  I was politely brushed off as irrelevant... They didn't even ask my name...

Thu, 08/06/2009 - 17:14 | 28245 Anonymous
Anonymous's picture

Maybe if you made a little "donation"... (You know what I mean? ;)

Thu, 08/06/2009 - 17:53 | 28335 Anonymous
Anonymous's picture

I think they take gold voluntarily and lead involuntarily...

Thu, 08/06/2009 - 16:51 | 28188 Anonymous
Anonymous's picture

So how long does this confidence game work?

Thu, 08/06/2009 - 16:54 | 28191 Anonymous
Anonymous's picture

'Nother auction coming next week.

Thu, 08/06/2009 - 16:52 | 28190 Anonymous
Anonymous's picture

It seems likely that the Fed has some backdoor way to do some of the overseas buying as well.

Thu, 08/06/2009 - 16:59 | 28207 PragmaticIdealist
PragmaticIdealist's picture

Currency swaps?

Thu, 08/06/2009 - 17:00 | 28210 MikeNYC
MikeNYC's picture

Isnt that what the Caribbean purchasers are used for?

Thu, 08/06/2009 - 17:02 | 28214 Project Mayhem
Project Mayhem's picture

Yeah , thats why they set up the swippy-swaps.  Probably mostly the indirect bidding of the Fed through overseas proxies occurs through the affiliated Arab Petrowhales, ECB , and BOJ.  Ah yes and as Mike says the Carribean as well.

Thu, 08/06/2009 - 22:09 | 28695 Steak
Steak's picture

Right on with connectin the dots.  All the foreign central banks are playing the same game as us: soaking up the toxic sludge of their financial sector and engaging in QE.

And who would want Treasuries?  You can get fatter yields on the better part of $2 trillion govt guaranteed corporates.

Article says $1.1 trillion European corporate bonds to date and $851 billion US corporate bonds to date.

Fri, 08/07/2009 - 01:49 | 28825 aldousd
aldousd's picture

you know, you're right. we should get Goldman Sachs to guarantee government debt. Then it would be like the self-licking lollipop. Wonder why we never thought of this before! 

Thu, 08/06/2009 - 17:06 | 28225 Anonymous
Anonymous's picture

Daisy Chain scheme, such as foreigh swaps. Hei, you buy my bond and I buy yours, then we swap and call it all indirect bid.

Thu, 08/06/2009 - 17:07 | 28227 Anonymous
Anonymous's picture

When you think about the Fed doing all this buying and printing, I get the increasing sense that they aren't motivated by crony capitalism with Wall Street (though that's happening), but that the Fed and the Govt are scared as hell and don't know what to do anymore.

They were obviously hoping that a re-inflate for a year or so would improve the job and consumption picture and it hasn't. I wonder if they have some sense of when they'll just have to admit these shell games aren't working.

Thu, 08/06/2009 - 17:23 | 28261 Anonymous
Anonymous's picture

That's a pretty reasonable argument. When all you have is a hammer, everything looks like a nail. The Fed can only print money to solve any problem.

Thu, 08/06/2009 - 17:19 | 28251 True Constant
True Constant's picture


Secretly issued Kennedy bearer bonds laundered through Switzerland?


Thu, 08/06/2009 - 16:54 | 28192 Gilgamesh
Gilgamesh's picture

This is actually what I was mentioning last night when I commented in the Dollar thread.  Going to have to check out Chris's site.

Thu, 08/06/2009 - 18:03 | 28351 Assetman
Assetman's picture


I think many of us suspected the Fed playing monitization games in most of the recent auctions-- but this is the first time we've seen concrete evidence of it.

That being said, it does appear the the currency markets really haven't been fooled-- and have looked at the recently completed Treasury auctions with a tad bit of skepticism.

Obama's cronies can say what they want about "supporting a strong dollar".  Actions are much lower than words here, and the Chinese are already well aware of the U.S. policy to monetize debt and trash the dollar.

It simply means that the Fed continues to pay debtors, politicians-- and most of all-- the piggy bankers.  Our childern (and grandchildren) are being left with a boatload of debt left by some very irresponsible and very corrupt oligarchs.

It should make J6P spitting mad.  Mad enough to eventually... do things. 

Thu, 08/06/2009 - 21:11 | 28649 Gilgamesh
Gilgamesh's picture

The major tip-off of what deals were worked out for that 7-year auction was the reaction in the dollar right afterwards.  Remember it looked like the Dollar had just held above the year's lows and was rebounding quite strongly; then it absolutely tanked after the "surprisingly strong auction" and continued the next day, proceeding to hit new 2009 lows.  The in-the-know Primary Dealers are also FX giants.

Sat, 08/08/2009 - 19:56 | 30555 Anonymous
Anonymous's picture

Kids just default.

banks do it and kids learn fast.

Thu, 08/06/2009 - 16:58 | 28201 assumptionblindness
assumptionblindness's picture

"Whatever deceives men seems to produce magical enchantment." - Plato

Thu, 08/06/2009 - 17:00 | 28211 Anonymous
Anonymous's picture

Effectively, the interaction between the treasury and the fed for money creation is being eliminated. Why the heck bother with issuing debt, find a buyer and then float the bills ? Why not just print the bills without an auction ? Why keep doing stuff the arcane way of accountability etc. In my belief, we have a process of accountability that is so 20th century. Treasury sells debt and feds create money for that amount, out of thin air. Just eliminate the treasury and let the fed just keep cranking up the machine. This will atleast freeze our "real" debt burden. I really do not understand this fucked up concept of feds buying the debt. This is nothing but massive fuckness.

Thu, 08/06/2009 - 17:00 | 28215 Anonymous
Anonymous's picture

Not sure anyone else may have just caught this, but on the headline immediately after CBS earnings report was "CBS Profit Falls 96%"
less than 5 minutes later it changed to this

Thu, 08/06/2009 - 17:24 | 28263 Anonymous
Anonymous's picture

It didn't fall SLUMPED 96%... that is a huge phycological (my spelling) are reported for using english that creates uncertainty.

Thu, 08/06/2009 - 18:06 | 28357 kote
kote's picture

I don't see where it says slumped... maybe they changed it again?

"CBS Profit Beats Street View; Shares Jump"

Thu, 08/06/2009 - 17:28 | 28273 Cheeky Bastard
Cheeky Bastard's picture

awesome i hope to live the day when ill see all the MSM media outlets bankrupt and only mentioned in the history books as a propaganda machine ...

Thu, 08/06/2009 - 17:58 | 28340 Bob
Bob's picture

I believe we're going to have to create our own replacement for youtube on distant servers (or ingeniously distributed among users . . . ) 

These fuckers (including the growing fascist gov) are going to tighten down the flow of information any and every way they can get away with it. 

Thu, 08/06/2009 - 17:29 | 28280 Cheeky Bastard
Cheeky Bastard's picture

your source of reference ( CNBC ) is also fishy and you have been reported ..

Thu, 08/06/2009 - 17:36 | 28304 Anonymous
Anonymous's picture

Flip to the sunny side of the coin. Some rouge writer must have infiltrated CNBC. And he almost got away with it!

Now he is being interogated by Cheney & Co.

Thu, 08/06/2009 - 17:01 | 28216 Anonymous
Anonymous's picture

Just like the Sodini Diaries noted in another post, someday we will be reading the Bernanke Diaries and finding out that the Fed was run by a horribly insecure little academic who, as he said himself in his Town Hall roadshow, "did not want to be the Fed Chief when the Second Great Depression started". Ben's fragile ego is both unchecked AND ruining everything for everybody (except Goldman Sachs, of course).

Ironically, it will be to a large extent because of exactly what Bernanke did (Fed member during the easy money years and onward to today's act) that America will have its Second Great Depression. us all a favor and do Sodini's very last act now.

Thu, 08/06/2009 - 17:19 | 28254 cougar_w
cougar_w's picture

He doesn't even have to shoot himself.

BB is not alone in this, he's just the most visible player carrying water for the rest of his cohort still operating behind the curtain. Bernanke could bow out and virtually nothing about the present will have changed. The system might as well have been engineered from the blueprints to self-destruct, so inevitable is that outcome.

But we are right to worry about what comes next. After the Ponzi scheme implodes, something will have to fill the void. With all our institutions and government policies discredited, I'm not certain what will rise from the ashes. Something like economic Feudalism perhaps, or the reinvention of the merchant class as defined as a real person behind real services operating in a real market, with no 14th Amendment "corporations as sovereign citizen" voodoo to land us back where we are now.

One can only hope.


Thu, 08/06/2009 - 19:03 | 28499 Anonymous
Anonymous's picture

the intent of the oligarchs is to reintroduce
feudalism.....they and their ilk have a deep
and implaccable contempt for "the little people"
which is to say anyone with a net worth less than
a billion usd....all else are tools and hangers

thus the oligarchs use fool tools like bernanke,
obama, et al to implement regime change and
control wherein pauperization and feudalization

each recession / depression has made incremental
progress toward totalitarianism....

see the russo video about jay rockefeller....see
the hoyer video posted on zh today to see
and hear the absolute contempt hoyer has for
his constituents....

Thu, 08/06/2009 - 17:06 | 28224 Stuart
Stuart's picture


Thu, 08/06/2009 - 17:07 | 28226 Anonymous
Anonymous's picture

Audit the assholes, thieves and criminals. HR 1207 if your rep hasnt signed on ask WHY now. Transparency is not too much to ask.

Thu, 08/06/2009 - 17:08 | 28229 cougar_w
cougar_w's picture

"The speed of the shell game is accelerating."

That's CM's opinion of course, but it also follows from logic. The grappling speeds up in the run-up to the collapse.

It's like a juggler who doesn't quite know what he's doing, he starts juggling and it goes OK for a few seconds, then the beanbags start to get out of place and he's suddenly lunging around trying to catch things, moving faster and faster, maybe it's part of the act but maybe not, you can't really tell. And if he's just good enough he recovers and continues juggling. If not, in a flurry of arms and beanbags it all hits the floor and the act is over.

Now imagine, he doesn't know what he's doing AND it's not beanbags, but chainsaws.

That's juggling with the economy. If they are just good enough, they recover and carry on the act. If not, it's ugly++.


Thu, 08/06/2009 - 17:09 | 28232 Anonymous
Anonymous's picture

This is not the monster under the bed! The POMO was announced well in advance of the auction. Dealers were aware a potential good trade existed. It made sense for dealers to offer their newly purchased 7 years to the Fed. The results of both the auction and the POMO are public knowledge. There is nothing hidden here.

Thu, 08/06/2009 - 17:13 | 28239 Tyler Durden
Tyler Durden's picture

While not the monster, it is a pretty blatant case of "flipping"

Also, the question then becomes why is there such an attractive arbitrage to be made in 4 brief days of UST curve moves between primaries and taxpayers: shouldn't the Fed have outright pocketed these in the first place and made whatever the upside was that the primaries collected after holding for 4 brief days?

Thu, 08/06/2009 - 17:42 | 28316 Miles Kendig
Miles Kendig's picture

Ahhh, Aren't these moves by the fed supporting free markets as they perceive them, just as their Maiden Lane and other programs?

Thu, 08/06/2009 - 17:45 | 28323 cougar_w
cougar_w's picture

And taking that a step further, while not the monster under the bed for professional traders, if the average American knew that the Government was first selling debt from one department and then quickly buying it back into another department -- and paying a fee for the privilege --  the average Joe would see that for what it is; an attempt to hide the body and then paying the off the henchman.

It can be business-as-usual and still be unacceptable. Most of our current BAU is just that. That's why they are starting to hide things. People are noticing that the deck is stacked and are not sure they want to play.


Thu, 08/06/2009 - 18:01 | 28345 Anonymous
Anonymous's picture

except this isn't bau.

Thu, 08/06/2009 - 17:51 | 28331 Anonymous
Anonymous's picture

no wonder gs had all treasury trading profits last quarter. maybe someone needs to ask bunkfein how many $100M dollars days they had minus fed buyback days

Thu, 08/06/2009 - 18:01 | 28343 ghostfaceinvestah
ghostfaceinvestah's picture

Actually, the dealers would have lost money on this trade - these were issued at 99-26 and sold at 99-07.

But that is not the point, i think (especially since the dealers probaby got made whole somehow) - the point is, our government issued debt, which was monetized 7 days later.

THAT, is the action of a banana republic, not a strong nation.

Thu, 08/06/2009 - 18:12 | 28369 Assetman
Assetman's picture

That is exactly the message.  Great observation, sir.

Thu, 08/06/2009 - 18:15 | 28375 ghostfaceinvestah
ghostfaceinvestah's picture

Actually, i take this back somewhat, after I realized these bonds were from THAT seven year auction.  the one that NEEDED to succeed, after the five year almost failed.

This was all about supporting that auction, I am convinced.  The dealers probably had a make whole agreement with the Fed.

If that auction had failed, bad, bad, news.  THAT would have been the trigger to set the whole collapse of the dollar in motion.

This is a HUGE find.

Thu, 08/06/2009 - 18:26 | 28396 Bob
Bob's picture

You got it.  Kinda puts us in the weird position of thinking about which way we want to take it, eh? 

Of course, it will be interesting to see how the market responds to this news. 

Thu, 08/06/2009 - 18:51 | 28476 ghostfaceinvestah
ghostfaceinvestah's picture

remember when Salomon got caught manipulating the Treasury auctions?  that was almost the end of them right there.  these auctions are supposed to be pristine.  this is a big deal.

Thu, 08/06/2009 - 23:00 | 28744 GoldmanSux
GoldmanSux's picture

The fed would do it through swaps with the PD's. Maybe explains why Deutsche and others bailed as PD's. Their fragile balance sheets don't allow more derivatives. Or, they just think they'll lose money over time. Royal Bank of Canada and Toronto Dominion were recently added as PD's. Good balance sheets.

Fri, 08/07/2009 - 01:30 | 28815 Anonymous
Anonymous's picture

Dear Tyler! Is it true what pm and 28404 alluded to, I mean the content in "world wide evil and the illuminati stuff" ? Also, did you hear any more about the U.S. giving the plans to the stealth bomber to the chinese that you mentioned a while back? I know at the time you said it was only a rumor, I've kinda been waiting to see something else about it? Thanks so much for your efforts, we all {well almost all} certainly hope for your safety! Frank

Fri, 08/07/2009 - 02:31 | 28837 agrotera
agrotera's picture


The issue of "insider trading" as it relates to the actions of the President's Working Group is one that i wish could gain some light...

You've talked about many related issues; you've posted the Sprott paper on the issue, and comm enters have had much to say about the issue.  Is there any way you might be willing to bring this issue out more directly and more regularly so that there might be a chance for the public to know what is going on, instead of it being understood only by a small group of people?

Thu, 08/06/2009 - 17:13 | 28240 Anonymous
Anonymous's picture

Certainly was announced in advance, but I think at issue is the media is selling the auction as successful (like there's real demand) and not pointing out the FED is responsible for half the purchasing.

Thu, 08/06/2009 - 18:04 | 28353 ghostfaceinvestah
ghostfaceinvestah's picture

Exactly, artificial demand creation.

Also, remember the history.  The five year acution THE DAY BEFORE almost FAILED.

Then the next day the 7 year was successful?

You don't think there was some "make whole" arrangement in place?

Longer-maturity Treasurys were boosted Thursday after a successful seven-year auction soothed investors and dealers burned by two disappointing Treasury note sales earlier in the week.

Treasurys seven-years and out were outperforming after the $28 billion sale, the final auction in a record $115 billion offering of Treasurys this week.

The auction drew the most interest from large institutional investors, including foreign central banks, of the three note sales this week. This demand, known as the "indirect bid", accounted for a robust 62.5% of the offering, compared with the 67.2% bid seen at the last $27 billion seven-year sale in June and an average bid in the low-to-mid 30% range.

The new notes were awarded at a yield of 3.369%, a bit below the 3.396% yield seen just before the sale, a sign of good demand. Bids totaled $78.59 billion, or 2.63 times the amount on offer, compared with 2.82 at the last sale and an average this year of 2.40.

Results came as welcome news for investors after the previous two- and five-year sales failed to attract much demand, raising the cost of borrowing for the U.S. government as it seeks to cover its rising budget shortfall.

Thu, 08/06/2009 - 17:13 | 28241 Stuart
Stuart's picture

BS nothing hidden here.  This is the snake eating its own tail and in the process artificially jacking up the demand figures at Treasury auctions to manipulation perception of greater demand than there actually is....

Thu, 08/06/2009 - 17:10 | 28234 Anonymous
Sun, 02/06/2011 - 21:16 | 939596 web dizajn
web dizajn's picture

FTA: The Bank of England has just decided to extend its programme of quantitative easing by £50bn. It’s also widened the range of gilts it is buying back from the market to include bonds beyond 20 years in maturity — something it had previously avoided given their general illiquidity — and has made a rather interesting and related agreement with the UK’s Debt Management Office. web dizajn

Thu, 08/06/2009 - 17:16 | 28247 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

So..  Any way to tell which PD was the front buyer?  Also, were they on the high end of the allotment for that issue?

Thu, 08/06/2009 - 17:17 | 28249 Anonymous
Anonymous's picture

and somewhere in here or elsewhere someone has to put up that video of Bernanke telling Ron Paul and other members of Congress that they are NOT monetizing the debt. Can we pin him down on that lie now, please?

Thu, 08/06/2009 - 17:18 | 28250 Anonymous
Anonymous's picture

Typical Fed ideological purview and the Senate has the kool aid still to look for a pivot point.

Thu, 08/06/2009 - 17:19 | 28252 Sancho Ponzi
Sancho Ponzi's picture

Bernanke had better exit gracefully before he's thrown under the bus

Thu, 08/06/2009 - 17:21 | 28258 Anonymous
Anonymous's picture

I wrote about this a couple of days ago here ...

and followed up that article yesterday ... and this morning ...


Thu, 08/06/2009 - 17:32 | 28289 poydras
poydras's picture

Thank you...

Thu, 08/06/2009 - 19:08 | 28508 dnarby
dnarby's picture

Dude, you need to copy the link from the page, the page you copied it off of truncated it with elipsis.

Also, could someone alter the comments so links are directly clickable?  ktnxbai

Fri, 08/07/2009 - 01:19 | 28811 Chumly
Chumly's picture

Thanks Brian.  I enjoy your writing and others at FSU.

Thu, 08/06/2009 - 17:23 | 28260 Anonymous
Anonymous's picture

Ben the Debaser hard at work!

Thu, 08/06/2009 - 17:25 | 28265 Anonymous
Anonymous's picture

it's a big deal

it proves that UST demans is sucking wind and they are trying to cover it up

they did this as crisis management because of the 5 yr auction disaster

there is little demand for UST in truth

see you later low interest rates

things that can't continue forever won't

Thu, 08/06/2009 - 17:25 | 28267 Anonymous
Anonymous's picture

I agree with posters #28148 and #28232 that there's really no new information here. We know that the Fed is buying treasuries. Would it really matter if the Fed bought treasuries that were issued at a much earlier date rather than these newly issues treasuries? This particular round trip purchase simply highlights in a very stark way the nature of monetization.

Thu, 08/06/2009 - 17:36 | 28303 Anonymous
Anonymous's picture

Yep. This is what QE looks like.

I will say this: the fact that they just bought last week's bonds could be significant. IMHO, the banks have a severe liquidity need. The Fed is only independent insofar as DC lets them be. They won't allow the Fed to let an auction fail or the market tank or another run on money market funds. The Fed is forced into this position.

Anyone have an estimate how much more the Treasury has to issue before October 1?

Thu, 08/06/2009 - 17:54 | 28336 trillion_dollar...
trillion_dollar_deficit's picture

Believe its around $900 billion.

Thu, 08/06/2009 - 19:07 | 28506 Anonymous
Anonymous's picture

provided that it does not need to fund the
500b usd line of credit for the fdic...

Thu, 08/06/2009 - 18:09 | 28364 ghostfaceinvestah
ghostfaceinvestah's picture

Disagree, you have to remember the context.  The five year auction the day before almost failed.  Terrible bid-cover.  then all of a sudden this auction goes well and calms people down.

You don't think there was some kind of "arrangement"?  These bonds traded off 19 ticks over the week, you think the dealers took a 19 tick loss?  Hell, no, guaranteed they were made whole.

This is Treasury auction manipulation, pure and simple.

Thu, 08/06/2009 - 20:08 | 28604 deadhead
deadhead's picture


it's one thing to have the public, open air QE.  It's another thing what they did with the 7s after the 5s mess the day before.  Clearly, a sign of weakness in regards the paper made weaker by this Fed 3 stooges type of bumbling.

it kills me to begin the inner mental process of starting to agree with the notion that the USA is exhibiting signs of a banana republic.  this is just so sad.

Thu, 08/06/2009 - 17:26 | 28270 Anonymous
Anonymous's picture

This is outrageous. After all the attention these auctions get, an explanation is needed. Good job, need more.

Thu, 08/06/2009 - 17:29 | 28282 Anonymous
Anonymous's picture

Sorry, this one is a snooze...

Recently issued bonds will be the most liquid. You can hate the quant easing program - I think we all do...

But this is the most efficient way to buy them back in.

Any gov trader can tell you that.

Thu, 08/06/2009 - 20:40 | 28626 frank
frank's picture

Shouldn't the fed be buying up the less liquid paper (off the run UST's)?

Is it not one of the main reasons for QE to provide liquidity? 



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