The Fed's UST-POMO Pyramid Scheme Exposed
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.
(145 votes)
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on Thu, 08/06/2009 - 15:25
#28110
Debt monetization schedule:
http://www.newyorkfed.org/markets/operation_schedule.html
on Thu, 08/06/2009 - 16:06
#28223
T., the Treasury issues the bonds, not the Fed:
"that the Fed, merely a week after issuing $28 billion in 7 year bonds (which Zero Hedge discussed previously) of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases"
not picking on you, just saying...
on Thu, 08/06/2009 - 16:08
#28230
Fair point. Although Treasury -> Fed = Monetization... that's the bottom line.
on Thu, 08/06/2009 - 16:14
#28246
I know, it's all one big cluster @#$K... They should merge them, it will be more efficient...the process
on Thu, 08/06/2009 - 22:02
#28745
The inherent intent is obfuscation Andy.
on Fri, 08/07/2009 - 00:56
#28828
Bingo.
on Thu, 08/06/2009 - 16:29
#28272
Let me quote on the definitive text on this subject -- from the book "Worldwide Evil and Misery" --
p.60
'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?
p.61
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
pp60-61
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....
on Thu, 08/06/2009 - 16:39
#28310
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.
on Thu, 08/06/2009 - 17:27
#28404
Thanks for the great read. Here is a link on Scribd: http://www.scribd.com/doc/3056906/chapter-7-of-Worldwide-Evil-and-Misery-by-Robin-de-Ruiter
on Thu, 08/06/2009 - 17:51
#28465
I just made some suitably creepy Treasury Dept artwork
http://i31.tinypic.com/1h5pxz.png
on Thu, 08/06/2009 - 21:31
#28719
Is that cotton, roses or what??
on Thu, 08/06/2009 - 21:43
#28732
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
on Thu, 08/06/2009 - 17:20
#28384
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.
on Fri, 08/07/2009 - 00:33
#28816
...
on Fri, 08/07/2009 - 00:17
#28809
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.
on Thu, 08/06/2009 - 18:04
#28504
Hey that's a green shoot! The green shoot of monetization and hyper destruction
on Thu, 08/06/2009 - 22:06
#28746
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.
on Thu, 08/06/2009 - 15:26
#28112
wow, this was a nice catch.
on Thu, 08/06/2009 - 16:45
#28321
agreed, very nice catch.
on Thu, 08/06/2009 - 17:04
#28354
Nice catch but the fish carries an ugly message.
on Thu, 08/06/2009 - 19:28
#28618
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?
on Thu, 08/06/2009 - 20:03
#28641
GS gets a cut for their trouble, which they then use to pump the market
on Thu, 08/06/2009 - 15:28
#28119
They've also purchased a few of the 30 years, but at least they waited a full month for those.
on Thu, 08/06/2009 - 15:33
#28140
We, the citizens of the United States must demand, not ask, that the Federal Reserve be immediately and honestly audited.
Whatever it takes.
on Thu, 08/06/2009 - 16:11
#28235
I'd settle for citizens demanding that the FED be utterly and entirely abolished.
on Thu, 08/06/2009 - 17:03
#28352
One shall beget the other.
on Thu, 08/06/2009 - 15:36
#28147
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.
on Thu, 08/06/2009 - 16:25
#28266
It should.
2009 will be the fist fuck Christmas. Don't shop early unless you are buying storable provisions and ammo.
on Thu, 08/06/2009 - 18:22
#28529
Head for the hills! God you people are fucking bat-shit crazy on this site.
on Thu, 08/06/2009 - 19:40
#28627
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.
on Fri, 08/07/2009 - 06:57
#28883
look, if you dont like what you read here do not do so. get back to buying more crap.
on Thu, 08/06/2009 - 15:36
#28148
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....
on Thu, 08/06/2009 - 15:48
#28177
Do you mean that primaries are required to bid on junk that no one in their right mind would own to save the government?
on Thu, 08/06/2009 - 15:55
#28196
Yes they have to. Part of being a primary dealer.
on Thu, 08/06/2009 - 16:00
#28212
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.
on Thu, 08/06/2009 - 16:26
#28269
Thank you.
on Thu, 08/06/2009 - 15:58
#28206
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.
on Thu, 08/06/2009 - 16:05
#28222
Ok, entry to diary,
Another reason today to kill women.....
on Thu, 08/06/2009 - 16:02
#28217
"Primary dealers do business directly with the Fed and are required to bid at Treasury auctions."
http://www.reuters.com/article/BANKSL/idUSN2633498520090626
on Thu, 08/06/2009 - 16:45
#28324
they are required to bid. the bids aren't required to be any good.
on Thu, 08/06/2009 - 16:11
#28236
I would like to hear the other side to this also.
on Thu, 08/06/2009 - 19:42
#28628
The other side of this is that "it isn't happening, HEY LOOK there's another story about Michael Jackson."
on Fri, 08/07/2009 - 01:07
#28830
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:
http://www.youtube.com/watch?v=PXlxBeAvsB8
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 GS...no 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 it...it 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.
on Thu, 08/06/2009 - 16:49
#28327
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!
on Thu, 08/06/2009 - 17:24
#28392
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.
on Thu, 08/06/2009 - 17:33
#28416
is the FED being honest? did you you catch that? does not mean anything. right!
on Fri, 08/07/2009 - 01:15
#28834
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!!!
on Fri, 08/07/2009 - 09:53
#29040
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...
/credulous
on Thu, 08/06/2009 - 15:37
#28150
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
on Thu, 08/06/2009 - 15:40
#28158
"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."
on Thu, 08/06/2009 - 15:41
#28159
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.
on Thu, 08/06/2009 - 15:42
#28161
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.
on Thu, 08/06/2009 - 15:50
#28186
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.
on Thu, 08/06/2009 - 18:53
#28582
That was probably due to Desdner Kleinwort being sold by Allianz.
"Commerzbank to buy Dresdner, axe 9,000 jobs"
http://www.reuters.com/article/euDealsNews/idUSLV17674820080831
on Thu, 08/06/2009 - 15:42
#28162
Its alright guys. Everyone calm down. Stuff like this doesn't matter. Pax Americana is here. No worries.
on Thu, 08/06/2009 - 15:44
#28168
Pax Americana? The dragon will devour the eagle. It's
not called the Chinese century for nothing.
on Thu, 08/06/2009 - 16:24
#28264
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.
on Thu, 08/06/2009 - 23:55
#28797
"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.?
on Fri, 08/07/2009 - 00:43
#28821
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 flag@witchhunt.gov
on Thu, 08/06/2009 - 15:44
#28166
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.
on Thu, 08/06/2009 - 15:55
#28195
Hopefully information will continue to flow free but it appears things could change.
OBama and Cyber Czar
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/25/AR2009052502104.html
Ron Paul C Span videos pulled from youtube!
http://www.prisonplanet.com/you-tube-pulls-hundreds-of-ron-paul-videos.html
on Thu, 08/06/2009 - 16:33
#28294
WTF, WTF, WTF! What is the appropriate role of government in "protecting private networks"? Unfuckingbelievable.
on Thu, 08/06/2009 - 17:04
#28355
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.
on Thu, 08/06/2009 - 18:34
#28542
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?
on Thu, 08/06/2009 - 16:37
#28305
I just read that article as well, you got to be fucking kidding me.... we're about to hit the breaking point quickly.
on Fri, 08/07/2009 - 14:30
#29598
Are they going to make all the senate and congress sites take their youtubes down, as well as Elizabeth Warren's?
on Thu, 08/06/2009 - 15:47
#28171
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.
on Thu, 08/06/2009 - 15:47
#28173
:reported: to flag@whitehouse.gov
on Thu, 08/06/2009 - 15:48
#28178
Thank god we have one good citizen out there :=)
on Thu, 08/06/2009 - 15:49
#28183
I was considering sending a picture of a flag to flag@whitehouse.gov. Is that how this is supposed to work?
on Thu, 08/06/2009 - 16:13
#28242
It could, I've been diligently reporting all lies and misinformation on the internet. I don't think flag@whitehouse.gov 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.
on Thu, 08/06/2009 - 16:28
#28275
Actual it's 1929 Germany... 4 years later they had the hyper inflation you speak of.
on Fri, 08/07/2009 - 01:56
#28846
phaesed, the inflation in Germany as 1923. Hitler came to power 1933.
on Thu, 08/06/2009 - 16:38
#28291
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.
on Thu, 08/06/2009 - 16:39
#28311
Sorry, I'm using a rotary phone... I'm afraid of punch dial and cell phones these days.
on Thu, 08/06/2009 - 15:49
#28181
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!
on Thu, 08/06/2009 - 19:00
#28594
They're not new but it rhymes.
on Thu, 08/06/2009 - 15:49
#28182
Here is some coverage of the Treasury's biggest customer, China.
http://debtsofanation.blogspot.com/2009/08/debts-of-lenders-chinese-policymaker.html
http://debtsofanation.blogspot.com/2009/08/debts-of-lenders-china-regulators.html
on Thu, 08/06/2009 - 15:49
#28184
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.
on Thu, 08/06/2009 - 15:59
#28187
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...
on Thu, 08/06/2009 - 16:14
#28245
Maybe if you made a little "donation"... (You know what I mean? ;)
on Thu, 08/06/2009 - 16:53
#28335
I think they take gold voluntarily and lead involuntarily...
on Thu, 08/06/2009 - 15:51
#28188
So how long does this confidence game work?
on Thu, 08/06/2009 - 15:54
#28191
'Nother auction coming next week.
on Thu, 08/06/2009 - 15:52
#28190
It seems likely that the Fed has some backdoor way to do some of the overseas buying as well.
on Thu, 08/06/2009 - 15:59
#28207
Currency swaps?
on Thu, 08/06/2009 - 16:00
#28210
Isnt that what the Caribbean purchasers are used for?
on Thu, 08/06/2009 - 16:02
#28214
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.
on Thu, 08/06/2009 - 21:09
#28695
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. http://www.bloomberg.com/apps/news?pid=20601087&sid=a.gZ6RqwXOoM
on Fri, 08/07/2009 - 00:49
#28825
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!
on Thu, 08/06/2009 - 16:06
#28225
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.
on Thu, 08/06/2009 - 16:07
#28227
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.
on Thu, 08/06/2009 - 16:23
#28261
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.
on Thu, 08/06/2009 - 16:19
#28251
Hmmm.....
Secretly issued Kennedy bearer bonds laundered through Switzerland?
on Thu, 08/06/2009 - 15:54
#28192
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.
http://www.zerohedge.com/article/dollar-breaks-again#comment-26700
on Thu, 08/06/2009 - 17:03
#28351
Exactly.
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.
on Thu, 08/06/2009 - 20:11
#28649
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.
on Sat, 08/08/2009 - 18:56
#30555
Kids just default.
banks do it and kids learn fast.
on Thu, 08/06/2009 - 15:58
#28201
"Whatever deceives men seems to produce magical enchantment." - Plato
on Thu, 08/06/2009 - 16:00
#28211
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.
on Thu, 08/06/2009 - 16:00
#28215
Not sure anyone else may have just caught this, but on CNBC.com the headline immediately after CBS earnings report was "CBS Profit Falls 96%"
less than 5 minutes later it changed to this
http://www.cnbc.com/id/32318894
on Thu, 08/06/2009 - 16:24
#28263
It didn't fall 96%...it SLUMPED 96%... that is a huge phycological (my spelling) difference..you are reported for using english that creates uncertainty.
on Thu, 08/06/2009 - 17:06
#28357
I don't see where it says slumped... maybe they changed it again?
"CBS Profit Beats Street View; Shares Jump"
on Thu, 08/06/2009 - 16:28
#28273
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 ...
on Thu, 08/06/2009 - 16:58
#28340
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.
on Thu, 08/06/2009 - 16:29
#28280
your source of reference ( CNBC ) is also fishy and you have been reported ..
on Thu, 08/06/2009 - 16:36
#28304
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.
on Thu, 08/06/2009 - 16:01
#28216
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.
Ben...do us all a favor and do Sodini's very last act now.
on Thu, 08/06/2009 - 16:19
#28254
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.
cougar
on Thu, 08/06/2009 - 18:03
#28499
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
on....
thus the oligarchs use fool tools like bernanke,
obama, et al to implement regime change and
control wherein pauperization and feudalization
return.....
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....
on Thu, 08/06/2009 - 16:06
#28224
BUSTED!!
on Thu, 08/06/2009 - 16:07
#28226
Audit the assholes, thieves and criminals. HR 1207 if your rep hasnt signed on ask WHY now. Transparency is not too much to ask.
on Thu, 08/06/2009 - 16:08
#28229
"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++.
cougar
on Thu, 08/06/2009 - 16:09
#28232
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.
on Thu, 08/06/2009 - 16:13
#28239
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?
on Thu, 08/06/2009 - 16:42
#28316
Ahhh, Aren't these moves by the fed supporting free markets as they perceive them, just as their Maiden Lane and other programs?
on Thu, 08/06/2009 - 16:45
#28323
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.
cougar
on Thu, 08/06/2009 - 17:01
#28345
except this isn't bau.
on Thu, 08/06/2009 - 16:51
#28331
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
on Thu, 08/06/2009 - 17:01
#28343
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.
on Thu, 08/06/2009 - 17:12
#28369
That is exactly the message. Great observation, sir.
on Thu, 08/06/2009 - 17:15
#28375
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.
on Thu, 08/06/2009 - 17:26
#28396
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.
on Thu, 08/06/2009 - 17:51
#28476
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.
on Thu, 08/06/2009 - 22:00
#28744
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.
on Fri, 08/07/2009 - 00:30
#28815
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
on Fri, 08/07/2009 - 01:31
#28837
Tyler,
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?
on Thu, 08/06/2009 - 16:13
#28240
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.
on Thu, 08/06/2009 - 17:04
#28353
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?
http://online.wsj.com/article/BT-CO-20090730-720829.html
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.
on Thu, 08/06/2009 - 16:13
#28241
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....
on Thu, 08/06/2009 - 16:10
#28234
Compare with the UK QE:
http://ftalphaville.ft.com/blog/2009/08/06/65761/double-secret-qe/
on Thu, 08/06/2009 - 16:16
#28247
So.. Any way to tell which PD was the front buyer? Also, were they on the high end of the allotment for that issue?
on Thu, 08/06/2009 - 16:17
#28249
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?
on Thu, 08/06/2009 - 16:18
#28250
http://www.econlib.org/library/Columns/y2009/Hummeltbills.html
Typical Fed ideological purview and the Senate has the kool aid still to look for a pivot point.
on Thu, 08/06/2009 - 16:19
#28252
Bernanke had better exit gracefully before he's thrown under the bus
on Thu, 08/06/2009 - 16:21
#28258
I wrote about this a couple of days ago here ... http://financialsense.com/fsu/editorials/2009/0804.html
and followed up that article yesterday ... http://www.ronpaulforums.com/showpost.ph... and this morning ... http://www.ronpaulforums.com/showpost.ph...
Brian
on Thu, 08/06/2009 - 16:32
#28289
Thank you...
on Thu, 08/06/2009 - 18:08
#28508
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
on Fri, 08/07/2009 - 00:19
#28811
Thanks Brian. I enjoy your writing and others at FSU.
on Thu, 08/06/2009 - 16:23
#28260
Ben the Debaser hard at work!
on Thu, 08/06/2009 - 16:25
#28265
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
on Thu, 08/06/2009 - 16:25
#28267
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.
on Thu, 08/06/2009 - 16:36
#28303
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?
on Thu, 08/06/2009 - 16:54
#28336
Believe its around $900 billion.
on Thu, 08/06/2009 - 18:07
#28506
provided that it does not need to fund the
500b usd line of credit for the fdic...
on Thu, 08/06/2009 - 17:09
#28364
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.
on Thu, 08/06/2009 - 19:08
#28604
correct.
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.
on Thu, 08/06/2009 - 16:26
#28270
This is outrageous. After all the attention these auctions get, an explanation is needed. Good job, need more.
on Thu, 08/06/2009 - 16:29
#28282
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.
on Thu, 08/06/2009 - 19:40
#28626
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?
on Thu, 08/06/2009 - 16:31
#28286
Where the F is the donate button.
Tyler and Staff.........outstanding work.
I will be donating a portion of my gains to ZeroHedge. I hope other people that appreciate the quality of work (that you will find NOwhere else) and the effort put in by the staff, please donate.
I know for some of you the idea of actually taking out your wallet and donating is foreign, but come on. That attitude of "Not me, Im not going to donate --other people can though" is such bs. If anyone deserves it, its these guys (and gals). Tyler is going head to head with Wall Street and the Government. Im sure he could use a little pat on the back. And not just a comment that says "Thanks again".
Wake up people- ask yourself if ZH is really worthy of a few bucks.I think the answer is simple.
Open your wallet up and fucking show some love.
on Thu, 08/06/2009 - 16:47
#28325
There's a donate link at the top.
on Thu, 08/06/2009 - 16:52
#28334
I bought a t-shirt :0)
on Fri, 08/07/2009 - 05:04
#28873
I thought you said "detonate" button :)
on Thu, 08/06/2009 - 16:31
#28287
Now, wait a minute. What was that again BB said just the other week? ;-)
But Mr. Bernanke adamantly denied that would happen. "The Federal Reserve will not monetize the debt,"he said. "Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation."
on Thu, 08/06/2009 - 16:32
#28292
Martenson has a very interesting site with a lot of good information on it -- www.chrismartenson.com
If you haven't all checked out his "Crash Course", it's thought-provoking and well worth viewing. And its free!
on Sat, 08/08/2009 - 00:34
#30154
THANKS for the suggestion to check Chris Martenson's site. Great stuff.
As Samwise Gamgee says, "it's as plain as the nose on my face" that we're on the cusp of a Debt Bubble, and when it pops it will be nation-changing.
To those who say, "relax, it's Business as Usual" that the Fed is buying the Treasury debt, I say, "Exactly my point!"
The fact that this unhealthy practice is accelerating, the fact that the Full Faith and Trust of the U.S. Government is teetering on the brink of oblivion, TOGETHER with the fact that this is "business as usual", precisely means the bubble is about to pop, and hard.
-Gordon Wade
on Thu, 08/06/2009 - 16:33
#28295
Tyler, half of this analysis is embarassingly wrong. The point that the Fed is monetizing five days after the Treasury issues is entirely valid. The point that the banks now have new cash to jam the market up is not. It is worth keeping the two points separate.
Think of it from a primary dealers' perspective: On Day 1 they take $10b cash and give it to the Treasury Department to buy bonds. On Day 6 they get $4.8b cash back from the Fed in exchange for some of those bonds. So where is the new cash, from the dealers' perspective, even if the Fed had purchased all $10b? What extra do they have to plow into stocks? None. The newly minted cash went to Treasury, which can spend it on cash for clunkers, first-time homebuyer subsidies, bridges to nowhere, whatever.
on Thu, 08/06/2009 - 16:57
#28318
What if the newly minted bills are used to increase M1?
http://www.economicexpert.com/a/Monetary:policy:of:the:USA.html
'The Federal Reserve has two main mechanisms for manipulating the money supply. It can sell treasury securities. When it sells treasury securities it reduces the money supply (because it accepts money in return for a promise to pay in the future). It can purchase treasury securities. When it purchases treasury securities it increases the money supply. Finally, the Federal Reserve can adjust the reserve requirement. The reserve requirement is indirectly related to the money multiplier as show above.'
Add some leverage and you've got a whole lot of cash that's got to flow somewhere
on Thu, 08/06/2009 - 17:37
#28432
Seems to me you're tunnel-visioning on the list of tools that are available without seeing that the context for the statement about M1 growth is a world in which people are actually holding Treasuries, rather then flipping them within days. With the assumption of a world where the bonds had been out for awhile, selling them would increase money, but that is not meaningful when it's a net zero few days hold.
on Fri, 08/07/2009 - 07:52
#28901
Sorry, that is not a true statement. Selling treasuries does not increase M1.
on Thu, 08/06/2009 - 17:14
#28373
I was wondering the same thing, no net new money.
on Thu, 08/06/2009 - 17:27
#28402
Right, that offset what would have been a large contraction had the Fed not bought back what they did. I honestly don't know how M1 keeps rising as we sell hundreds of billions of treasuries - it makes no sense
on Thu, 08/06/2009 - 21:44
#28734
The Fed's purchases increase the money supply, although that's not really the main issue.
While there's no "new money" to the primary dealer, the Federal Reserve Notes given to the Treasury by the primary dealer are replaced by the Fed's new money (it's intrinsically worthless "federal reserve check") when the Fed completes the circuit.
Treasury -> Primary Dealer -> Fed... the Fed replacing the Primary Dealer's cash in exchange for the bonds creates the new money, and the Fed's holding the bonds which can be pyramided into new checkbook money (if people were borrowing) would presumably create (much) more.
If the exchange was just Treasury -> Primary Dealer no new money would be created -- the bonds would have been swapped for existing cash.
The issue is really perception as this confidence game runs its inevitable course. Given that the vast majority of "new money" is created by loans in the banking system, this monetization is not about creating inflation as much as it is about trying to salvage confidence so the government can continue being the "spender of last resort".
Watch your back.
on Fri, 08/07/2009 - 01:38
#28841
The printed money goes into the blackhole bankheist fund, and then these banksters have money to game the system once they find out what the president's working group will be doing each day--maybe that is another reason for the wonderful green shoots from the toobigtofail banks--lots of front running, and insider deals, while they buy anything and everything to make it look like the market if full of green shoots.
on Thu, 08/06/2009 - 16:34
#28299
There would have been sufficient demand for the bonds, IF the interest rate had floated to the market equilibrium level needed to sell it out.
Umm... Why does one suppose that didn't happen?
on Thu, 08/06/2009 - 17:02
#28347
Held artificially low. Just like mortgage rates.
These efforts will probably do little anyway as current worst case scenario forecasts predict that 48% of homeowners will be under water in 2 years. Even if it is only 30% to 35% it is going to stunt growth in many areas.
on Thu, 08/06/2009 - 17:18
#28380
Small correction: That is 48% of current mortgage holders, not just plain homeowners (some of whom have paid up and have title to their homes now). I believe you are quoting the DB analyst that was on CNBC today...??
on Thu, 08/06/2009 - 17:45
#28450
Did they repeat the tidbit that a further 17% drop in average home values would completely eliminate all (aggregate) mortgage-holder/"homeowner" equity?
on Thu, 08/06/2009 - 16:35
#28300
I think alot of folks in the market know the Fed is buying it's own paper.
It's all done to shape public opinion. How much you wanna bet tomorrows jobs numbers are just GREAT. Obama is down in the polls, so I suspect a little skullduggery.
on Thu, 08/06/2009 - 17:32
#28415
Yep. Monetization never looked so good... even though BB won't admit it.
The public has seen the pattern of prior employment revisions, and they haven't looked good... so who's Obama really fooling? CNBC?
There close to 3 million reasons why Obama is losing traction in the polls... and it's counting higher.
Just wait until QE comes to a halt and the Fed can't expand the balance sheet come October.
on Thu, 08/06/2009 - 19:13
#28607
Just wait until QE comes to a halt and the Fed can't expand the balance sheet come October.
Will it come to a halt? I'd be curious what folks think about this. I think our Brit friends had this issue come to the forefront today, right?
on Thu, 08/06/2009 - 16:35
#28302
CAN SOMEONE GET THIS INFO IMMEDIATELY TO THE MEDIA - GLENN BECK.....AND TO RON PAUL....PRONTO
AUDIT THE F$&%$ING FED -- BEFORE MY CHILDREN AND GRANDCHILDREN HAVE NO MORE COUNTRY.....NOW
on Thu, 08/06/2009 - 17:05
#28356
Country??!?!? what country?
on Fri, 08/07/2009 - 01:43
#28843
I'm pretty sure Glenn Beck is a reader here...Ron Paul already knows all of this, but he can only do so much...he needs everyone to know...remember
When the people fear their government, there is tyranny; when the government fears the people, there is liberty.
Thomas Jefferson
on Thu, 08/06/2009 - 16:37
#28306
I don't think you'll hear Steve Lies Man talking about this.
on Thu, 08/06/2009 - 16:39
#28312
Well...The Fed is clearly propping up the long end in USTs and MBS. Makes one wonder what the long end would look like without the prop job.
on Thu, 08/06/2009 - 16:39
#28314
Recalling the excellent silver ETF analysis a while ago, would it be possible to dump the data into a "dabatase" from various sources and determine using - maybe - CUSIP how widespread this has been?
Pete
on Thu, 08/06/2009 - 16:43
#28317
This is truly pathetic - the government and the 'independent' Fed routinely buying bonds to flatten down yields. It's just as pathetic as the HTF millisecond-mail-in-rebate crap at the NYSE. Now the fed has ramped up the print/buy scheme because it has no choice - the rest of the world are sick of buying these instruments that will be valueless or defaulted on by maturity
on Thu, 08/06/2009 - 16:45
#28322
Awsome catch TD, so monetization was the last tools left, lets use it before hell breaks. How about SPY at 15 cents? Nooo Thats too much...
on Thu, 08/06/2009 - 17:14
#28374
1. The Fed monetizes government debt in the open market all the time. That is how they lower the overnight Fed rate, which is the rate banks charge each other to borrow.
2. The Fed charter does not allow them to buy treasuries directly at auction except for rolling over expired issues. Section 14 states that all treasury purchases must be from the open market.
3. It seems that if that much money was flooded into the open market the Fed funds rate should have collapsed towards zero. It did not. It has been holding steady at 17-18 basis points for over a week.
Therefore, the overnight rate shows nothing out of the ordinary as far as Fed monetization.
However this does not mean that the Fed is finding another way to show increased demand for the auctions.
on Thu, 08/06/2009 - 17:44
#28457
That's the thing... ordinarily, the Fed is "monetizing" through open market operations-- at the SHORT END of the curve. It's hard to take issue with that.
What's happening now is that the Fed is intervening and monetizing debt AWAY from the short end-- and doing so in a very opaque, but dominant manner around the current auctions. In essence, they are subsidizing rates across the board to keep them artificially low. Why? Because Treasury has a huge financing need, and wants to keep interest payments as low a possible.
It's a sham.
on Thu, 08/06/2009 - 18:41
#28557
I still don't see what the big deal is.
The Fed has stated their intention of buying longer dated treasuries in the open market. They did the same thing in WWII to hold the rates down.
Currently there is plenty of demand for shorter term treasuries so the Fed is now monetizing the debt in the open market by buying longer dated treasuries. Instead of buying shorter term treasuries with excess reserves at auction the primary dealers are now buying longer term treasuries because there is more demand in the open market from the Fed.
In the long run the purchasing of longer term treasuries may be more risky if the economy turns around (ha!), but short term it seems that the program merely keeps the long rates down.
The monetization is the same.
on Thu, 08/06/2009 - 22:41
#28769
The "big deal" is the Fed is having to monetize newly issued Treasury debt because NO ONE ELSE IS WILLING TO BUY at the price needed to prop up the markets.
In order to keep the debt and equity markets propped up, the Fed must keep yields around the current rates, especially in the 7-10 year range. The Fed appears to be in desperation mode because they know there's a lot more in the pipeline coming-- and there's less and less outside capital willing to sop it up. And this time, they made a big "stick save".
As for WWII... the Fed did, indeed, buy Treasuries to keep rates down in WWII-- but the Treasury at the time provided a quick payback to the Fed becuase of their ability to successfully sell "War Bonds" to a willing and patriotic investment public. The debt being raised today isn't issued to support a war effort-- it's being used to pay for other people's grand schemes gone bad. Investors will only buy if they feel they can make a real return.
The Chinese and other countries running capital surpluses are justifiably pulling back because they now see U.S. policy for what it is-- by monetizing, the Fed is willing to debase the value of the dollar at the expense of foreign investors that have REAL capital. U.S. investors certainly have the ability to buy Treasuries, but underlying demand only gets sufficiently strong when the equity markets are tanking. Oh, and we just can't have that right now (see below).
So, now the Fed is reduced to covertly financing Treasury debt by creating money out of thin air. The debt sprial, my good man, is accelerating-- and no foreign government is going to get in the way. As investors, the Chinese are justifiably worried.
The Fed could certainly pull back its activity in Treasury auctions and let supply and demand create a clearing price. But they seem desperate to keep yields artifically low, so that credit spreads remain narrow and stock prices remain robust. Why? Because there is still a need for many capital constrained companies to raise money to cover future bad loans/investments. Just look at what is coming up in terms primary and secondary issue pipelines to get an idea.
So as a result, the secret is out-- and the dollar is winding down-- and it could get a lot more dangerous if the Fed continues down this path.
on Thu, 08/06/2009 - 16:50
#28330
Fedury, say it again; Fedury....rolls off the tongue rather smoothly.
All within the letter of the law? Which day was that law written? Which law do you refer to? Pardon?
on Thu, 08/06/2009 - 17:09
#28363
haha that is a great name
FEDURY
on Thu, 08/06/2009 - 17:22
#28387
I like The TRED...
on Thu, 08/06/2009 - 16:59
#28342
Did you see the 6th comment on CM's article (by CM himself) -- the Fed essentially monetized the 88th largest annual GDP in the world in 1 day.
"For my next trick, I shall attempt to monetize the GDP of Taiwan in 6 1/2 hours...."
on Thu, 08/06/2009 - 17:08
#28361
Dear Chuckleheads,
Have a look at the bigger picture before focusing on 1 datapoint.
Feds balance sheet has been declining. see http://www.bloomberg.com/apps/news?pid=20601087&sid=aChXwMsOQfGo
Re Tylers comment somewhere above,regarding the 4 day turnaround. why is the Fed rewarding the primary dealers cash in on these Fed rebalancings? THis seems like a much easier question to answer and broadcast via MSM.
on Thu, 08/06/2009 - 18:14
#28516
Your link's no good.
...But I guess all is well regardless, no need to audit them to verify their balance sheet, right?
Ftard.
on Thu, 08/06/2009 - 17:10
#28366
Fed fisher and I paraphrase: 'The federal reserve will not masturbate the Treasury'
on Thu, 08/06/2009 - 17:11
#28367
"Eraser Head" Geithner swore to the Chinese that the US would NEVER monetize the debt. Well there goes Eraser Head's credibility.
We are all doomed if the Chinese ever read Zero Hedge.
on Thu, 08/06/2009 - 17:22
#28386
Yes he did. But they were laughing in his face when he said that so he knew it was ok to go ahead and do it.
on Thu, 08/06/2009 - 18:14
#28520
...Makes you wonder what they have planned.
on Thu, 08/06/2009 - 22:58
#28783
94 protons. 150 neutrons. melting point 912.65 K.
on Thu, 08/06/2009 - 22:53
#28779
HILARIOUS!
on Thu, 08/06/2009 - 20:35
#28667
I wonder if Eraser Head Geithner and BURN-Nanke ever compare notes and make sure they're on the same page before they make large promises they have no intention of keeping to sovereign heads of state?
http://www.youtube.com/watch?v=VORBTZ2kVik
on Fri, 08/07/2009 - 01:52
#28844
you must know that they are way ahead of us already. They could call the debt and own the East coast if they wanted to do so.,
We only have F@#$%^& "HOPE" left, now that the F@#$%^& Fed/Treas agents have convinced the country that the only thing that matters is saving the F#%$%^& toobigtofail banks...our national security has to be sacrificed for the good of the F@#$%^& monster blackhole toosacredtofail banks.
The F@#$%^& HOPE is the kind of hope Obama guaranteed for us to have if we elected him fishy in chief. OK, i know, he didn't get us here, but he sure is hitting the whole game home by backing the paulson bernake plan!!!
on Thu, 08/06/2009 - 17:29
#28407
got 282 cosponsors for hr1207, i think 290 prevents veto. keep up the good work!!
on Thu, 08/06/2009 - 22:22
#28756
The eight hold outs could name their price.
290 co-sponsors to investigate the largest cartel in the history of the world?
Priceless.