This page has been archived and commenting is disabled.
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.
»
- 63688 reads
- Printer-friendly version
- Send to friend
- advertisements -
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.
There's a donate link at the top.
I bought a t-shirt :0)
I thought you said "detonate" button :)
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."
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!
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
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.
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
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.
Sorry, that is not a true statement. Selling treasuries does not increase M1.
I was wondering the same thing, no net new money.
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
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.
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.
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?
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.
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...??
Did they repeat the tidbit that a further 17% drop in average home values would completely eliminate all (aggregate) mortgage-holder/"homeowner" equity?
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.
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.
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?
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
Country??!?!? what country?
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
I don't think you'll hear Steve Lies Man talking about this.
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.
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
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
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...
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.
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.
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.
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.
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?
haha that is a great name
FEDURY
I like The TRED...
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...."
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.
Your link's no good.
...But I guess all is well regardless, no need to audit them to verify their balance sheet, right?
Ftard.
Fed fisher and I paraphrase: 'The federal reserve will not masturbate the Treasury'
"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.
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.
...Makes you wonder what they have planned.
94 protons. 150 neutrons. melting point 912.65 K.
HILARIOUS!
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
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!!!
got 282 cosponsors for hr1207, i think 290 prevents veto. keep up the good work!!
The eight hold outs could name their price.
290 co-sponsors to investigate the largest cartel in the history of the world?
Priceless.
It seems to me the main stream media is all singing the same tune.
Does anyone have any insight on why they are all singing the same tune and why they aren't picking up interesting stories like what is mentioned above?
What is the deal? I still want to know what happened to the japanese dudes smuggling 120 billion worth of bearer bonds into switzerland.
Or about the fed changing the rules to become indirect bidders to make it look like foreigners still want our bonds.
This stuff is too good to make up and we get stuck with listening to bull shit green shoot nonsense.
---Gargamel
It's the social climate, you have to profess belief or you'll stink up the room as much as people protesting the Patriot Act and Iraq War did before they were written off as terrorist sympathizers.
Lying is the patriotic thing to do. It keeps us all warm and hopeful, regardless of reality. It unites us as a nation.
God Bless America.
Look up who OWNS the MSN. You'll find it's all the same peeps running the show.
We all knew this was "happening" or could "happen" - What I find interesting is the, why. If you can sell the Bond why buy it back?
I believe the answer is: "No one would buy it"
But the really sad part is that Tyler didn't get to write page after page and show graph after graph (of spiking interest rates) with the ever present movie theme. LOL
whore and military industrial complex SLUT nancy 'the cheap corporate hooker' Pelousy, will never allow this audit the FED bill to come to a vote in the house. and same goes for the dinocrat shills in the senate.
they're all bought and paid for, people. don't you get it yet???
we don't have a government, we have a corporate fascist CLUSTER FUCK in the U.S.S.A.
Tyler,
If you read this here are my thoughts. You do write many a good opinions, but of late much of your posts are borderlining sensationalism. This POMO is nothing new, it has been going on for a long time. Just gotta know where to look. CM hasn't uncovered anything new. Finance is as much about confidence and projections as it is about dog eat dog, top salesman, manipulation and much more. So lets say this house of cards fall's, then what, are we better off? We all have different viewpoints, some more bullish than others and others more exuberant. I've been bearish from a simple standpoint, which is that most assets classes are not affordable to the masses. And until the rich-poor gap comes down, everything remains a house of cards. I think many bears are looking for anything and everything to claim that this market turnaround from March lows is a headfake, that the data doesn't seem to support such a scenario. However, I do run a retail business, and here is what I am experiencing: Increasing sales, increasing inflation in many of the product ranges I offer, increasing costs of utilities, increasing shortages of basics, increasing profits (yes I have actually grown YOY since 2001 by 20+% annually), increasing importation and transportation costs, decreasing suppliers, increasing borrowing costs (which are now projected to come down within the next few weeks), increasing opportunities to venture into new businesses. So from my perspective, the rally does seem to have legs. The case also exists that during the depression, many businesses grew and thrived.
ummm, you are basing the rally off of how your one business is doing?
That seems pretty insane.
ummm, you are basing the rally off of how your one business is doing?
That seems pretty insane.
In what, pray tell, business are you in.
Oh yeah. Ftards-are-us. Sorry, mybad ktnxbai
He sells wheelbarrows
Sounds like you have a dose of inflation, which is exactly what Zimbabwe Ben wants.
How wonderful, the blogs comments taken over by 20 something year olds on excitement overdrive. When you have been part of the street for atleast 10 years, been through 2 recessions then you teenagers can come out with one line comments. So I suppose no one had the foresight to start thinking, well with shrinking balance sheets, many households will start opting for do it yourself stuff (like knitting) rather than buying ready made. So yeh we started a yarn shop and now we can say over foresight paid off. So all you 20 something and 30 something year old day time Wallstreet salesman stuck in a little cubeholes cold calling much of the day, can either go back to raising and losing money, or have some foresight yourselves.
more parsnips
less monetization
Hey guys, they also bought $4 billion of a 5 year issue that was put out at the end of May (912828KV1), 200million of the 5 year from last week, and some others....
i was wondering about that. someone has to be a good soldier and track CUSIPS from the auctions to when the Fed bought them.
Everyone knows the Fed is monetizing - fine. But supporting an auction that almost failed? I swear, if that auction failed, the whole system might have gone down. I am not being overly dramatic. A failed bond auction in the USA? Scary, scary stuff.
Uh... no. Not quite.
Hey the last auction could have "failed". They "fail" all the time. The result is a spike in realized yields. That's what the auction process is all about.
It's just that the Fed did not want these auctions to fail. Why? Well, the last failed set of auctions caused a minor equity market correction. And market corrections are very bad for issuing new equity... you see where I'm going with this?
So the Fed is now in full frontal monetization mode... probably until the Fall.
A salute to CM for this brilliant observation that tells the tale to all of us with the data in front of our faces all along. That being said, if this is not an excuse to pile out of the dollar and look for stability, I give up. For those that dismiss this, I suggest reading the path the Argentine Republic took from 1990 to 2008 which gives you a rough, probably more peaceful roadmap than the path we are on.
Those that think that a hyperinflationary depression is impossible do not understand the implications of economic history. Think outside the box or be buried in one.
Which is more of why the dollar is safer than any other currency at the moment.... hyperinflation can only be started by active production.... yes, eventually there will be hyperinflation, but as long as the inflation is attacking the first stages of the production cycle, the dollar is the best place to be because once the realization that the inflation cannot be moved through the entire business cycle, it pops and we enter deflation.... which is where the dollar shines. Shorting the dollar is a crowded trade right now my friend.
Personally, I think it's safer because all the other countries are debasing quicker (if you can believe it).
After the eventual crash, it's going to come down to natural resources, means of production (both goods and food), and work force competency. So long term, I think we'll do just fine here (remember we have Mexico and Canada to trade with for what we can't make ourselves).
...Of course, this is after we create a brand new financial and monetary system from scratch. Gonna be kinda 'sporty' until that happens though.
wtf did you just say?
American-style Corralito is a frightening thought.
Looks like somebody put a lock on DXY.
look on the bright side. things are not so bad here after all.
imagine if zerohedge were based in china criticizing its government, it would've been shut down long ago, tyler et al would "disappear", and all commenters here would be put on permanent watch.
or it could be that we are already progressing that way and we don't know it yet...
Dude...
If we were in China, we'd be reading it through proxy servers to circumnavigate "Ye Great Firewall".
And FYI, ZH's servers are located in Denmark. Kind of a pre-emptive free speech protection strategy.
Fine, just please do not reveal the GPS coordinates - especially the really good ones - damn semi autonomous drones.
;-)
Pete
Ok help a noob get this straight.
The Fed is openly monetizing. Under the table monetizing as shown here. It has been suggested on this site that CB purchases are partially subsidized(monetized?) by the Fed through currency swaps.
Just how much of the July 30 7 year auction purchases were actually non-fed funded? Are we talking 35%? 25%?
What does this really say about the state of US Gov debt?
Would it be safe to say, our highest esteemed government financial institution as well as the organization in charge of our currency have been undeniably caught doing something (now revealed as) disingenuous (dishonest?), even if not illegal?
*****OK I was really digging this site for the last weak for the brave realistic stances it takes on issues that usually get misleading or completely diluted commentary on. But this is article crosses over in to the world manipulating commentary to push an agenda.
THE Fed is being as transparent as they can be in the treasury purchases you are mentioning (This was no secret). No they are not going to go out and advertise the monetization in a way that makes it look bad. They will put the best face on it in the interest of the treasury market and the broader financial system that we all depend on.
Don't sell this like this was some earth shattering discovery. So much of the information you post is valuable and provides great color on issues that are hard to stay up on.
I disagree, this is a big discovery. Yes, everyone knows the Fed is monetizing. But the thought was they were monetizing off-the-run Treasuries. Sure, they buy old 7 years, the PDs buy new 7 years, what's the diff, right? Money is money.
But this 7 year auction was probably the most scrutinized of the over-scrutinized auctions, because the 5 year auction was weak (to be generous). the rumours were the Chinese did zero bidding at the 3 and 5 year auctions.
When this auction came in relatively strong, there was a lot of relief, and the bond market rallied. Check the charts.
http://finance.yahoo.com/echarts?s=^TNX#chart2:symbol=^tnx;range=1m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
And now we find out that the Fed bought a huge chunk of that auction, a week later? Very, very, not good. Manipulating treasury auctions is a no-no.
The entire financial system is "very, very not good" . If you understand the situation we find ourselves in, manipulation is needed. Did you really think the largely strong bid-to-covers of the last few months were organic.
The way out of this thing with least pain involves massive amounts of mental massaging. About 18 months ago I was joking around with a HF manager that sooner or later the government will be forced to pump lithium into the water supply. My nature is generally rebellious and semi anti authority, But I know a heavy hand is needed here for our own good. At the very least they bought us a 6 month reprieve from the death spiral of deflation, which I am thankful for.
I agree. The government is doing everything it can to keep the lights on. And instead of being angry, I'm thankful. If Ben and Tim want to lie to me in order for me to keep a job, they have my permission to do so. I hope they pull off a miracle
They're making it worse for everyone to save the rotten TBTF banks. There are 8,000 other banks in this country.
You and I will suffer more because they are gutless and corrupt.
You deserve it, your children do not.
http://exiledonline.com/decline-fall-of-america-exhibit-514-broke-alabam...
r u kidding me? this is going to make things worse, much worse. the integrity of our Treasury auctions is now in question. this changes everything.
This changes everything? Not for me. The system has too much debt, and was destined to fail because once you can't let your debt compound faster than your income for too long--and we've been doing it for thirty years. This isn't any sort of revelation. This is a sign that we are reaching a breaking point that was predicted by some over two years ago. Every borrowed dollar just speeds us along to one of two predictable outcomes--neither good.
Your "hope they pull off a miracle" won't provide national security or anything else now that priority was to save monster blackhole failed entities in lieu of truth telling and taking down the monsters and letting smaller companies buy their slimy, but useful parts.
It will take a miracle to prevent our country from failing because it have been gutted from the center all for the sake of calling evil monstrosities, "toobigtofail" and effectively considering them "sacred" you may change your mind about what is right, good and true.
...why did this comment post more than once? sorry...
...sorry
...
...
Wonderful short term wishful thinking! And you’ve given me a great business idea. I’m going into the pest control business. Anyone whose house is being eaten away by termites, I’m going to just paint it! It’ll look so nice. Problem solved. And when I am done painting, I will literally kick the can down the road.
Incidentally, if one is allowed to be purely self-serving, as in “they can do whatever they want if it helps me keep my job”, then I want---no, I DEMAND massive deflation. And damn if I don’t deserve it. I have zero debt, millions in TBills, and sold all of my fixed assets in 2006 (okay,I missed top tick). I live well below my means. I had absolutely no part in the debacle we are now facing, and damn if I think it is in any way shape or form fair if those who caused all the problems are not only being saved, but benefiting from their mistakes and stupidity and greed.
I want the guilty to pay. I do not want the innocent to pay. I want deflation. I want to buy property at ten cents on the dollar. I want to buy Babe Ruth’s baseball bat at auction for $50 and pull a Wall Street Pro on Lloyd Blankfein’s wife’s surgically lifted face.
Am I too demanding? Compared to the list of the bailed out banks, I’m the epitome of altruism.
do you have a brain?
the point is 5y had really bad auction and 7y was likely to follow, this is some evidence which put the 'strong' 7y auction result in question..
For me, the point isn't the monetization so much as what it says about our debt, fewer people want it every day while we're trying to run a deficit of over $1 trillion.
This is an extension of what happened on March 13th.
On Friday China questions the “full faith” of the U.S. dollar. What this means is they will not bail out the U.S. with non-stop purchasing of Treasuries, the blood of the financial body.
On Sunday Bernanke does the first national interview a Federal Reserve chairman has ever done in 96 years. He says everything is fine and we’ll be back to business as usual by the end of the year. Then on Wednesday the Fed announces they will buy Treasuries until the end of days. So…
1. China warns about the financial stability of the U.S.
2. Bernanke goes on national television
3. Says he’s from Main Street, just like you and me
4. Then boldly lies about the economy
Three days later…
* FOMC announces a final push of a desperate crisis management plan
* U.S. dollar sees its 3rd biggest one-day decline ever
* Fed is now matching all of China’s $1 trillion in Treasuries
For more details on the mechanics of this and the potential dangers:
Our Engineered Meltdown: End of the Beginning
http://www.gamingthemarket.com/2009/03/end-of-the-beginning.html
Remember it well. March 18th, the day I started moving my wealth out of the USD.
Trying again since the links were cutoff.
I wrote about all of 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.php?p=2247813&postcount=8
and this morning ... http://www.ronpaulforums.com/showpost.php?p=2249696&postcount=11
Brian
Karl dropped you a H/T at Ticker for your work. Kudos!
Thanks SV.
Brian
so, the game is over?
short the stock market
"The market can stay irrational longer than you can stay solvent"
Has the NY Fed bought any of the ten year auctioned 7/8 or the 30 year auctioned 7/9 ? Indirect bid ( especially for the ten year - 43.9 for july versus 34.2 for june ) , was stronger than expected. 30 year had 50.2 indirect bid ( compared with 49 for june - even though july yield was 4.303 as compared with june's 4.72. Demand hard to explain under the circumstances.
read my lips, no monetization of debt!
Something tells me Bernanke will act like there's absolutely nothing wrong with this, we do it all the time...nothing to see here...move along.
CNBC sucks. They've got airheaded MTV personalities, and they don't do the journalistic legwork. Meanwhile, CM and ZH are kicking ass and taking names without even having Gasparino's rolodex.
http://acrossthecurve.com/?p=7671
John Jansen on why this is normal and there is nothing odd about it.
Jansen is missing the point.
This is what he posted after the auction, wonder who was paying so much and why? He totally missed it.
http://acrossthecurve.com/?p=7460
"Why would someone bid at levels rich to those which prevailed in the market?
There are a couple of reasons. Suppose you have a huge short position and wish to cover. To cover in the market for size might be disruptive and could send a signal to the market that there is a big buyer. So, in the single price auction which I described yesterday, the trader who bids through the market might feel comfortable doing so to make certain that he gets all the bonds he needs with out causing some disruptive price action.
The problem arises because one does not know how many other folks have the same plan and if enough bidders submit bids at levels expensive to the market ,then they shoot themselves in the foot rather than maiming the taxpayer.
That would be the result today."
this is what he said right before the auction:
http://acrossthecurve.com/?p=7455
"So there is no question that the issue is cheap. Sometimes, however, things are cheap for a reason. With the first two auctions so sloppy and each of them so far underwater that owners of each will be dialing Jaques Cousteau for aid, I do not know why dealers would bid aggressively for this one."
But yet they did bid aggressively, and he came up with the rationale above.
He was hoodwinked, just like everyone else in the market (myself included), and made up a rationale, which turned out to be wrong.
Now he says this is normal. This is NOT normal.
John Jansen missed the point. The point was what I originally wrote about in the Financial Sense piece on Tuesday 8/4 ... http://financialsense.com/fsu/editorials/2009/0804.html ... well before Chris Martenson's story surfaced. It is not that the Fed has been purchasing treasury debt since 3/25. Of course it has ... it said it would ... and it said it would purchase long term treasury debt.
The point is that it has gotten to the point where the Fed is essentially lending directly to the Treasury ... which is explicitly disallowed by the Federal Reserve Act (I corrected Martenson in his blog on this point). The Fed can only purchase securities at auction that are maturing in its SOMA portfolio. This is reported in the "SOMA" line of the Treasury Auction Results report. But when the Treasury can auction large amounts of debt and have the Fed support that auction by purchasing those same securities on the day of issuance, this in my opinion is violating the aforementioned section of the Federal Reserve Act. Not only that, it is more expensive for the taxpayer as there are middlemen involved (earning fees and commissions) ... the primary dealers.
Brian
The other point of my article was to provide explanation as to why the 7-year Treasury Note auction on Thursday 7/30 went so well in the face of poor 5-year and 2-year auctions the prior days.
Brian
Thank you for bringing it to our attention, though it took a roundabout route. Good catch!
CHARLES PONZI WOULD BE PROUD!!!!
BUY SILVER!!!
We see who paid for that.
Their empirical conclusion was just the opposite: rather than fiat money being created first and credit money following with a lag, the sequence was reversed: credit money was created first, and fiat money was then created about a year later:
Having failed to understand the mechanism of money creation in a credit money world, and failed to understand how that mechanism goes into reverse during a financial crisis, neoclassical economics may end up doing what by accident what Marx failed to achieve by deliberate action, and bring capitalism to its knees.
Academic economics responded to these empirical challenges to its accepted theory in the time-honoured way: it ignored them. GD
That is Steve Keen. He certainly deserves 'credit' for it, don't you think???
http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
Basil Moore 1983, “Unpacking the post Keynesian black box: bank lending and the money supply”, Journal of Post Keynesian Economics 1983, Vol. 4 pp. 537-556; here Moore was quoting a Federal Reserve economist from a 1969 conference in which the endogeneity of the money supply was being debated.
“In the real world, banks extend credit, creating deposits in the process, and look for reserves later”.
call me silly, but I think the ongoing purchase of $1.5 trillion in mortgage debt securities by the Fed matters more than the $300 billion in USTs.
You are absolutely right. Bernanke can overpay a lot more for the MBS, since that would not be quite so visible, thus funneling even more cash into the coffers of Goldman Sachs and the rest of the clowns who remain too big to fail.
In his defense, Bernanke said “it made him sick to bail out the banks”. I guess similar to an anorexic who spends time after ever meal in the bathroom sticking her finger down her throat, Ben likes being sick. In fact, he can’t seem to get enough of it. Every time I look at the ever-growing Fed balance sheet, I say to myself, “Benny is feeling sick again.”
This refers only to the portion of the auction bought by PD:
on the day of the auction there is X amount of cash in the system, the primary dealers buy Y worth of bond, then the circulating cash must be X-Y. Few days later the FED goes to the market and buys a Y1(in this case almost 50% of what was bought by the PD) amount of the bond that was auctioned few days earlier so the amount of cash in the system is:
X-Y+Y1.
The cash circulating in the system is still less than the original X at the moment of the auction.
Most definitely is not very reassuring (especially for the external value of the $) that the "US INC" is asking for money from investors and it happens to be also one of the major investors by why of printing money, but the amount of cash circulating in the system is less than the moment before the auction.
ghostfaceinvestah, Tyler
I respect your insight but think you guys are making too big of a deal of this. This is sensationalist, I mean really,
“The upshot: The Fed bought nearly half of LAST WEEK'S 7 year Treasury Issuance TODAY.”
Get real. The Fed actually bought less than 17% of the issue, but that wouldn’t be a very sexy headline.
I agree that buying an off the run 7 year would have looked less suspicious but the supply issue is also relevant. As for the notion that primary dealers are flipping, it is very hard to say definitively, especially given that it traded WI a few days before the placement (to say nothing of the hedges dealers could have put on). btw, why are you so sure that it was 1 dealer? did you see his book?
This is what QE looks like. It is monetization. You can argue that it is bad policy, but I see nothing surreptitious. I don’t see it as front running or flipping at all. The Fed told the world that it would do this and the dealers believed it. Does anyone here even bother to look at dealer positions? They were net long $26b Treasuries as of Aug. 6. If you look at them before the crisis, they were massively short Treasuries and long corporates – there was a nice carry.
There are some bad things in the world and there are even some conspiracies. But that does not mean that everything is a bad conspiracy. I love the site, but lately it’s becoming more and more tin foolish (and the comments section is from Bellevue).
The implication is that they propped up what would have otherwise been a weak or failed auction. The weak auction is the largest part of the story.
What do you guys think about the Chiasso mystery?
http://seekingalpha.com/article/149213-ongoing-134-5-billion-bearer-bond...
I think that whole story is made up. It makes no sense.
One of the best threads on ZH to date
The comments section absolutely superb
Regarding my personal strategy for the days ahead
I don't know what to do, but I have ceased worrying about it
Societies have been mucking things up since they began
It is foolish to think we are wiser and smarter than our predecessors
Most certainly, we are not
Best of luck to everyone
Per GATA: "Several bloggers are screaming that the Fed monetized half of the $28 billion seven-year auction. This is totally false. The Fed monetized $6.43 billion of 7s on Thursday and $6.3 billion of 5s on Wednesday. The five-year auction was $39 billion. The above New York Fed link is crystal clear on what the Fed monetized this week."
http://www.gata.org/node/7669
So who's correct?
In case anyone is interested, there is quite a bit of brouhaha brewing over on naked capitalism, with Yves Smith taking a rather unusually personal affront to Tyler's piece:
http://www.nakedcapitalism.com/2009/08/monetizing-debt-disinformation-in.html
Hi everyone... I am not the most financially literate person in America but something bad is wrong and I hold a very large piece of the puzzle.
I get referred to as " MARIA BE LEN CHAPUR" but my real name is Liz Shepherd. It's a very long story but no I did not screw Mark Sanford, however he screwed me and how.
He screwed you too. This mess is his baby and I rocked his boat. I had to. I apologize for getting sick again, after voluntarily returning to work with my lifetime illness.
I GOT OFF OF WELFARE AND THE FINANCIAL CRISIS HAPPENED> how about that.
Actually the problem is quite serious because he and Jenny Sanford are programmed by this C Street Cult. These people are a cult ya'll. But they are dangerous I promise. They believe they FOLLOW Jesus. They mean they REPLACED JESUS and they use religion to justify great harm to the general population at large.
THESE PEOPLE ARE BRAINWASHED CULTISTS AND SOMEONE NEEDS TO STOP THEM.
They don't even look right. Did you catch Rick Sanchez and the Healthcare Rick. Does he look like a balanced dude? Cmon ya'll.
THESE C STREET CULTISTS HAVE STOLEN THE ENTIRE US TREASURY AND FED>
Mark and Jenny Sanford and several more yet to be publicly named but privately known SOUTH CAROLINA characters are out globe trotting trying to get cash
Google the cartoon for Inez tenenbaum and take that as a hint. C STREET LANGUAGE LIKE MY NICKNAME>
Maria BeLEN Chapur
Ok translation... sick sick evil people these C Streeters are... and yep they got my phone tapped and have been in my home. I SAY GO THE H* LL AWAY people. GET A LIFE how bout it. No one made you guys Kings. Stop pretending
IT IS JUST THAT EASY FOLKS> KEEP SAYING NO NO NO NO NO NO
STOP COOPERATING> DON"T OBEY THE LAWS< THEY DON"T why should you?
I promise they will run. Dark has just these past few months RUN from light.. Bad from Good. Evil from LOVE.
How bout them apples. Stand tall and proud people. You are citizens of the UNITED STATES OF AMERICA.
DEMAND IT
Go google America, you will want to puke
www.america.gov
Remember Obama said... 57 states. Well 50 plus Guam, Northern Marianas, Puerto Rico, Virgin Islands , Samoa and I thought that was all.
But if you GO AHEAD ADD IN CANADA AND MEXICO..... well you get 57 states.
Then.... you say wait wait,,, This is the United States of America.... not anymore. GO LOOK <> Did you catch Sonia Sotomayor taking the oath to the United States? Obama took both of his oaths to " The United States".
Who has said the pledge of alliance to the flag lately>????
MAKE YOUR SENATOR AND CONGRESSMEN RETAKE THE OATH OF OFFICE OR PROTEST THEM EVERY DAY UNTIL THEY DO>
MAKE THEM TAKE THE PLEDGE EVERY DAY AT IN THE CHAMBERS OF we the people. Sadly we are in little letters right now.
Remember this. Mark Sanford thought he knew better than everybody else in America. That is a lot of people ....
He judged himself better than every single financial guru out there. The man is of danger to himself and others as are all affiliated C Street members, associates, paid help, and other associates.
WE GOTTA CLEAN IT UP FOLKS> IT IS OUR REPSONSIBILITY.
But yeah America is broke. It's Mark Sanford acting in behalf of Fidelity Investments.
Again, I apologize for getting sick. I could not help it but MARK SANFORD COULD HAVE.
Maria BE LEN CHAPUR
PROBLEM IS LIZ SHEPHERD ( because she found her private SSA account at Fidelity Investments)
http://www.youtube.com/watch?v=ZQSUAdwr2Qc
why would you do it directly when a. you can hide it to a reasonable extent and b. you buddies at the primary dealer can make a quick million cold hard cash from the commissions on the flip... ?
I visited this page first time and found it Very Good Job of acknowledgment and a marvelous source of info.........Thanks Admin!
http://www.reverse-phone-look-up.net
http://www.reverse-phone-look-up.net/phone-lookup
Its one of the good platform for awareness of people. Keep sharing such stuff in the future too. xbox 360 s
I found lots of interesting information here. The post was professionally written and I feel like the author has extensive knowledge in the subject. Keep it that way masters in athletic administration