This page has been archived and commenting is disabled.

How The Fed Sourced 83.4% Of Treasury Cash Needs Since The Start Of QE2

Tyler Durden's picture


It is no secret that since the start of QE2 in November, the US Treasury has issued a gross $890 billion in debt in the form of various Bond, Bill and TIPS. This is cash that the US received in exchange for promises to pay interest and principal at maturity on various series of bonds. At the same time, over the past 5 months, there was $291 billion in debt maturity paydowns, or cash leaving the Treasury and going to those who are lucky enough to receive principal on US debt at maturity. That leaves a net of $589 billion in debt that was issued between November 1 and March 31: money used to fund the ongoing operations of the United States. This is all perfectly public and well-known. After all, every single auction is loudly announced by CNBC at 1 pm Eastern on auction days, with a breakdown between Direct, Indirect and Primary Dealer takedowns. Note that the Fed does not feature in this list of primary issuance bidders as that would be illegal, and would be monetization beyond even any semantic argument that the Fed does not, in fact, monetize. What is less known is that the true action in US Treasurys occurs in the secondary market, or that dominated by the Federal Reserve. Here is where the daily POMO takes place, where as we have noted on many, many, many occasions Primary Dealers promptly flip bonds purchased during a primary auction right back to the Fed. This is where the real source of Treasury funding comes from. And what many may not be aware of is that since the start of QE2, the Federal Reserve has purchased $491 billion of Treasurys in the Open Market (and $556 billion since the start of QE Lite). This $491 billion in indirect monetizations ultimately ended up funding government cash needs. In other words out of $589 billion in net issuance, the Fed has been responsible for 83.4% of the money needed to fund government transfer payments (among many other uses of funds) and keep the US consumer "strong", not to mention funding US defense, education, healthcare and every other aspect of US day to day cash needs. QE2 is supposed to end in precisely three months. During that time the Fed will fund another $400 or so billion in US cash needs. What happens after, nobody knows. 

The same story in chart form.

First, we present the official story of who buys Treasurys at auction. This chart shows the monthly take down of all auctions since November, broken down by Primary Dealer, Indirect (foreign) and Direct (everyone else) investors (as well as token non-competitive purchases). Note: no Fed here.

On the chart above note that in March we had the smallest absolute Indirect interest in US Treasurys (a delta filled by the return of the mysterious Direct Bidder).

The next chart shows the same story but broken down by new bond issue maturity. The two bonds sought after the most are 2 and 5 Years, of which $175 billion has been auctioned off each.

Next, we refine the issuance data, by going from gross issuance to net: namely removing contractually require cash outflows in the form of Pay Downs, showing what the true New Net Cash inflow is (black line).

Which brings us to the key chart: the only question remains how much of this net cash need comes from the Fed. The answer: 83.4% of the total cash over the last 5 months. And the only reason this number has declined is due to the increasingly lower amount of MBS that are prepaid to the Fed, resulting in a lower QE Lite component of Treasury funding.  What is amusing is that in January the Fed indirectly funded $122.1 billion of total Net cash needs of $113.2 billion, or a 108% overfunding.

And so now everyone knows just who is reponsible for the ongoing funding of the US government. Amusingly, Congress squabbles over a government shutdown due to a $30 billion discrepancy which is the amount the Fed monetizes in one week. A far bigger question for the government's ongoing operation, is just who will step in to provide this 83.4% of ongoing cash needs when the Fed supposedly ends monetizing debt on June 30.

Which incidentally brings us to one tangential point. As Stone McCarthy demonstrates, the average maturity of the Fed's $1.33 trillion in Treasury holdings (and $1.7+ trillion by the time just QE2 is over) has declined consistently since 8 months ago, dropping from over 80 months to just 66.7 months.

We expect by the time QE2 is done that the average maturity of Fed holdings will be under 5 years. In other words, should the Fed go ahead and actually reverse its buying patterns, which means at some point it will be forced to flood the market with Treasurys of increasingly shorter maturity, the UST curve will pancake overnight, as the market panics, discounting such a move by the Fed. This means that the 2s10s will go from 264 bps currently to sub 100 bps, or possibly invert, as the curve of such stalwart countries as Ireland and Portugal is doing recently. This is tantamount to the immediate execution of all financial institutions in the US that rely on borrowing near and lending far (read all of the hedge funds formerly known as banks). So before anyone tells us that the Fed is preparing to tighten, be it by ending monetization, ending ZIRP, or even hiking rates, can they please explain to us just what will prevent the outright second insolvency of the US banking system?



- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 04/03/2011 - 16:32 | 1130314 Highrev
Highrev's picture


Sun, 04/03/2011 - 17:48 | 1130494 asteroids
asteroids's picture

You folks had better check your money market funds!

Sun, 04/03/2011 - 19:46 | 1130736 euclidean
euclidean's picture

Classic Keynesian debt structuring is all this amounts to. Place all your debt in the lowest yields - the US Treasury are the genius so far.

Since people have been/still are calling for an end to the Fed Res - what is to say this isn't the Fed winding itself down to a zero balance sheet? Thus leaving the US taxpayer with a lump of low yield worthless paper when they close the doors once the SDR is shoved down your throats.

The Fed Res does not have to sell it's bond holdings. It might simply hang onto them until maturity. You know their is no gold inside - that's funded the dividend payments of the Class A shareholders.

What happened to audit the Fed program? Bernanke will hand the Fed over when it's worth nothing ... oops, too late. Maybe his successor will turn it all around.

Sun, 04/03/2011 - 20:23 | 1130817 disabledvet
disabledvet's picture

like i called it:  "the fireman who's a pyro" problem.  "then he comes to the rescue!"

Sun, 04/03/2011 - 20:25 | 1130823 metastar
metastar's picture

Yes, the SDR will save us. We yield our sovereignty (like we still actually have it) in return for fresh fiat trash to enslave us.

A country which does not control its currency does not control its destiny.

Sun, 04/03/2011 - 16:35 | 1130324 slow_roast
slow_roast's picture

Why doesn't the Fed just start printing Euros?  Swiss Francs? 

Sun, 04/03/2011 - 16:39 | 1130337 Sudden Debt
Sudden Debt's picture

because they first want to use up those stocks on green ink.


Sun, 04/03/2011 - 20:29 | 1130828 disabledvet
disabledvet's picture

btw--where's the phucking thank you you mighty Belgium Ale you?  Who knew secret doses of Chimay could cause American Bankers to give you so much money!  Those clever monks!

Sun, 04/03/2011 - 19:33 | 1130696 eddiebe
eddiebe's picture

They do via the oil in dollars scam.

Sun, 04/03/2011 - 16:37 | 1130331 duncecap rack
duncecap rack's picture

They will tighten for a month or so to flush the speculative longs down the toilet. Then they will start a new period of devaluation with the big banks reaping the last of the fruits of the nations past.

Sun, 04/03/2011 - 16:38 | 1130332 Sudden Debt
Sudden Debt's picture

And now that the 2012 election roadconshows will start, new promises will need to be made that will cost trillions more.




Sun, 04/03/2011 - 17:27 | 1130410 knukles
knukles's picture

Paying all my bills'd be nice, but 1 job'd be enough, thank you.  I'm not supposed to be the last guy supporting all the government employees.  Insidious, he is, heh?.

Sun, 04/03/2011 - 19:44 | 1130734 Long-John-Silver
Long-John-Silver's picture

We'll need 200K jobs when bread costs $100.

Sun, 04/03/2011 - 16:40 | 1130333 Turd Ferguson
Turd Ferguson's picture

How it is that virtually no one seems to grasp this?

Let me state this very clearly:



Sun, 04/03/2011 - 16:45 | 1130350 Sudden Debt
Sudden Debt's picture

I really don't think people understand what kind of shit America and Europe are in (we're pretty much connected to the FED to so it seems).

There is no way out. In the near future, our economies will crash, burn and evaporate.

Unless the find a way to turn crap into gold.


Sun, 04/03/2011 - 17:18 | 1130431 Mr Anderson
Mr Anderson's picture

Every time a dairy cow craps. It is spread back on the field to feed said dairy cow-

You drink the milk of the cow. Dairy owner trades your 4 dollar gall of milk for 1/360th oz of gold.

So as you can see crap does become gold.

Sun, 04/03/2011 - 17:31 | 1130461 Mr Anderson
Mr Anderson's picture

Did I mention that the State Govt requires the crap to be spread on the field. Further if the spread crap gets into the river the Govt fines Mr. Dairyman.

So crap becomes gold and crap becomes Govt gold.

Sun, 04/03/2011 - 20:28 | 1130832 disabledvet
disabledvet's picture


Sun, 04/03/2011 - 16:47 | 1130351 RockyRacoon
RockyRacoon's picture

I believe you are correct Massah Turd.  It won't be called QEIII or anything else.  It won't be announced nor touted.  The Tea Party folks will need cover in this project.  It must go on, so it will.  The methods will be uncovered here on the pages of ZH but the lumpen proletariat and the MSM will be clueless.

Sun, 04/03/2011 - 17:20 | 1130440 Mr Anderson
Mr Anderson's picture

Which is why we the people have to ensure the FED's printing is known the day it loans money rather than 2 years later. A simple choice- keep your accounts open and available, or we revoke your charter!

Sun, 04/03/2011 - 16:49 | 1130353 JonTurk
JonTurk's picture

even pausing for a month will take silver down at least %30

Sun, 04/03/2011 - 17:35 | 1130471 Bastiat
Bastiat's picture

Physical supply disappears before you get halfway there.

Sun, 04/03/2011 - 18:24 | 1130560 Snidley Whipsnae
Snidley Whipsnae's picture

Correct. China, Mid East, India, SE Asia, all big buyers at 30% off PMs.

Printing to continue and stand by for massive inflation, crash in equties, more crashing in CRE and Res RE. A shit storm, iows.

Sun, 04/03/2011 - 19:48 | 1130742 Long-John-Silver
Long-John-Silver's picture

Only crumbs of physical Silver remains.

Today's spike is tomorrows dip.

Sun, 04/03/2011 - 16:53 | 1130364 unky
unky's picture

what i really dont understand is that they have 1000 ways of funneling money arround. the fed could give it to private banks or other countires banks/institutions who in turn could buy treasuries. why do they make this ponzi scheme so obvious, why not more hidden?

Sun, 04/03/2011 - 17:15 | 1130416 NOTaREALmerican
NOTaREALmerican's picture

Why hide something if the marks aren't smart enough to notice what is going on?     The smart people that are participating in the scam need it to be an open one.    They are ripping off the dumbass peasants, they'll never figure out who screwed them.  

Sun, 04/03/2011 - 18:09 | 1130528 RockyRacoon
RockyRacoon's picture

Yup.   It's 3 card monty -- done right under your own nose.

Only another crook knows the trick.  The mark remains clueless.

Sun, 04/03/2011 - 18:26 | 1130563 Snidley Whipsnae
Snidley Whipsnae's picture

Keynes put it best... 'Not one man in a million understands...'

Sun, 04/03/2011 - 16:59 | 1130373 Reese Bobby
Reese Bobby's picture

I agree with Turd, (four words I never expected to string together).

However, this analysis is great.  I'm sure Zimbabwe Ben will use these charts in his King's Speech this week...

Sun, 04/03/2011 - 17:02 | 1130382 deez nutz
deez nutz's picture

QE can't end? wanna bet?  .................WAR!!   Those islamic sons o bitcheZ are gonna pay dearly!!  WATCH!!

Sun, 04/03/2011 - 18:02 | 1130520 zaknick
zaknick's picture

Yeah but if it really comes down to war or collapse I think they'll need something truly major to distract the sheeple.

Like a nukular false flag in ur backyard, biotch!

Sun, 04/03/2011 - 19:00 | 1130614 deez nutz
deez nutz's picture

luv the "nukular" reference ...reminds of a mission accomplished moron with a daddy full of money

Sun, 04/03/2011 - 17:15 | 1130415 knukles
knukles's picture

Well, thank God they're not monetizing the debt!  If they were just think of the world of shit we'd be in....


Sun, 04/03/2011 - 17:40 | 1130480 saulysw
saulysw's picture

Turd : I tell my kids that "forever" is mighty long time. See further ZH motto. Still, I take your point, and agree..z

Sun, 04/03/2011 - 17:51 | 1130500 DUNTHAT
DUNTHAT's picture

How could they continue with QE without calling it QE??

These bastards are up to something, because like you said, it can't end.

Sun, 04/03/2011 - 19:03 | 1130624 rocker
rocker's picture

'How could they continue with QE without calling it QE??'

The FED has NO Money. But they can print it.  The name applied does not matter. It all equals "Printing". Which equals devaluation of your purchasing dollar. The hidden tax on teabaggers. How else can they fund all that debt. Pay for their bloated defense budget for wars. And bailout the scumbag thieving banksters.

Someone said China will buy PM's if we get the correction, I only hope, I surely will join them with great joy for the opportunity. 

It was interesting to here the CEO from Honeywell on Bloomberg this weekend. He said the cost of industrial metals are going to go up. Such as Zinc and Aluminum.  Hello. Buy them all, including silver. It is your only way to level the playing field against the FED. Otherwise, you completely loose.

Sun, 04/03/2011 - 19:52 | 1130749 eddiebe
eddiebe's picture

They'll 'just' have to pay way higher rates to attract funding. If that doesn't work anymore they will have to link to gold.

Sun, 04/03/2011 - 20:03 | 1130774 dark pools of soros
dark pools of soros's picture

from drug money..  after the CIA gains control of the weed in Mexico to go with all the opium in Afghany they can print a little less dollars



Sun, 04/03/2011 - 21:00 | 1130902 TwoShortPlanks
TwoShortPlanks's picture

Sorry Turd, you are totally wrong. QE cannot go on forever, infact, the Fed has decided enough is enough and has let-go of the reigns. The Fed is more than aware that this path of QE will lead to both the inevitable collpase of the US economy AND Hyperinflation. What giving-up now means, is that they can focus soley on Inflation and let that inevitable collpase happen sooner rather than later...that's right, the Fed policy now is to "Purge the rottenness out of the system".

Everyone that touts that QE will not end are both in denial and extremely short sighted. Short sighted in that inevitable really does mean i-n-e-v-i-t-a-b-l-e!

This is what will happen:

1. The Fed will stop QE programs

2. The US Gov will default, become insolvent, ratings will be lowered and infrastructure will crumble

3. Interest Rates will climb over 18% within 1 year of QE2 ending

3. Nobody will buy US assets so there will be no foreign income

4. Stock Markets will adjust accordingly, expect Commodities to plunge except for a panic run on PMs

5. The US way of living will match that of Mexico or possibly Cuba with 2-3 years


Sun, 04/03/2011 - 21:25 | 1130954 Boston
Boston's picture

You're exactly right.

They can scare the shit out of everyone....and then they'll come right back with QE3.

Sun, 04/03/2011 - 21:33 | 1130972 TwoShortPlanks
TwoShortPlanks's picture

That's true, and I am 100% convinced that will happen however, eventually, the printing will end and the pain will have to be taken.

I also believe that there is no avoiding Civil War in the US either.

Sun, 04/03/2011 - 22:14 | 1131075 rufusbird
rufusbird's picture

Just wait. There will be a new presidential order stating that all Federal Reserve activities can only be commented upon by Federal Reserve Officials...

Sun, 04/03/2011 - 22:54 | 1131185 malek
malek's picture


Sun, 04/03/2011 - 16:44 | 1130346 cossack55
cossack55's picture

I know, I know, I know. Pixie dust and Hopium. TaDa!!!!

What do I win?

Sun, 04/03/2011 - 17:26 | 1130429 knukles
knukles's picture

Alex:  That's right, cossack!
You win a past due retroactive unconstitutional tax bill for $14,398.99, a letter will be sent to you shortly by the IRS inviting you for a free audit, and due to your effervescent smart-ass humor, an entirely unfriendly visit from a bevy of federal officers to at a minimum harass your punk ass for daring to think let alone expond un-American thoughts.

Sun, 04/03/2011 - 16:46 | 1130347 PragmaticIdealist
PragmaticIdealist's picture

FRB members have made is clear what will happen after QE2... They will simply maintain the size of the Fed's balance sheet by rolling over Treasurys (i.e. QE lite 2.0).  That's all you need to continue to monetize sufficiently; you don't need another QE.

Sun, 04/03/2011 - 17:06 | 1130385 Charles Mackay
Charles Mackay's picture

Don't get that.  Sure they can use the money from expiring notes/bonds to buy more notes/bonds, but the Treasury will also have to rollover everything.

The problem comes with how to finance the additional new debt - $1.4 trillion per year.

So while it is correct that the Fed can keep buying new notes/bonds with expiring notes/bonds, someone still has to buy all the incremental new debt.  Unless the Fed has a new plan, there is a huge financing hole.  Rolling over existing mortgage backed securities to Treasuries will help some, but not much.



Sun, 04/03/2011 - 17:25 | 1130451 Mr Anderson
Mr Anderson's picture

Yields go up to say around 10% much like Ireland or Brazil. Grandma decides golly thats a good investment. Takes that CD getting .8% for 10% treasury bill.

Thus grandma funds the govt.

Question- what happens to the bank when grandma and soroptimist friends all remove their savings to buy T-bills?


Sun, 04/03/2011 - 17:34 | 1130467 DUNTHAT
DUNTHAT's picture


Like Gross asks "Who is gonna buy the DebT???"

Sun, 04/03/2011 - 17:07 | 1130391 A Man without Q...
A Man without Qualities's picture

This is not true, mainly because of the holdings are largely around 5 yr tenor.  QE lite was rolling over mortgage assets when cash received was through redemptions/refis.  

The interest paid on Treasuries is remitted back to the Treasury, so it's going to be years before they get the principal repayments do this.

Sun, 04/03/2011 - 18:07 | 1130527 PragmaticIdealist
PragmaticIdealist's picture

Tenor doesn't matter. If markets understand that there will be Fed buying interest in the future (either due to roll-off or QE(2+x)) then market players will purchase Treasurys in advance.

Sun, 04/03/2011 - 18:10 | 1130532 RockyRacoon
RockyRacoon's picture

Ah, yes.  That "expectations" thingy again.

Let's see how that works with inflation.

Sun, 04/03/2011 - 18:23 | 1130551 PragmaticIdealist
PragmaticIdealist's picture

Until inflation shows up more prominently in core CPI numbers, the Fed will continue its campaign against the masses. Bondholders won't care since they are either wealthy (i.e. exposed to core CPI and not only food/fuel/healthcare) or institutional holders who index their performance against core CPI.

Sun, 04/03/2011 - 18:34 | 1130568 Snidley Whipsnae
Snidley Whipsnae's picture

1% increase in interest rate on treasuries = $140Billion more deficit to pay...and compounding. Fed is on a high wire with no net.

Sun, 04/03/2011 - 19:59 | 1130770 eddiebe
eddiebe's picture

I look at it this way: The fed being a private concern moving markets and making laws is not walking a wire at all. They will get theirs one way or another. We the people are walking the wire with blindfolds attached.

Sun, 04/03/2011 - 17:09 | 1130396 Molon Labe
Molon Labe's picture

You assume then that federal deficits will decrease going forward?  The average duration mentioned above is just over five years.  The amount rolling over each month will not be enough to monetize sufficiently unless deficits decrease dramatically.

Or is my math wrong?

Sun, 04/03/2011 - 16:46 | 1130348 Kimo
Kimo's picture

No problem... Iraq's assets will cover the bill.

Sun, 04/03/2011 - 16:57 | 1130370 unky
unky's picture

and Libyas too

Sun, 04/03/2011 - 16:58 | 1130374 magpie
magpie's picture

no need for my new Libyan Central Bank joke then...

Sun, 04/03/2011 - 17:19 | 1130435 knukles
knukles's picture

Oh, come on....

Sun, 04/03/2011 - 16:59 | 1130376 Reese Bobby
Reese Bobby's picture

Wind whistling through your head makes a disturbing sound...

Sun, 04/03/2011 - 17:08 | 1130400 magpie
magpie's picture

Step right up and buy the new 6.66% "HOPE" US Consol, or the 5.5 % "CHANGE" 100 year bond !

Buy, buy, buy before we monetize!

Sun, 04/03/2011 - 17:21 | 1130442 knukles
knukles's picture

Oh, he's not the ventriloquist, that's Ben making that sound.

Sun, 04/03/2011 - 16:53 | 1130365 cuttlefish
cuttlefish's picture

Just when does the game stop and when does the run start?

Sun, 04/03/2011 - 18:28 | 1130559 hedgeless_horseman
hedgeless_horseman's picture

It can continue until the people with the oil decide to stop accepting USD, food, and medicine from the people with the cool weapons, or until the oil runs out.

As a good indicator of what is to come, watch what happens in and with Mexico as they soon become a net importer of oil. It isn't called the "petrol dollar" for nothing.

Sun, 04/03/2011 - 18:36 | 1130572 Snidley Whipsnae
Snidley Whipsnae's picture

Mexico has a plan B. They are becoming the worlds largest exporter of drugs. What oil? They doan need no stinkin oil!

Sun, 04/03/2011 - 17:01 | 1130375 A Man without Q...
A Man without Qualities's picture

Coffin corner...

The Fed stated its determination to create inflation, therefore guaranteeing that absent their bid in the market Treasuries are a losing proposition, unless rates rise to a level that threatens the solvency of the government as well as a sharp drop in equity prices and higher yielding debt.  Cutting spending will merely expose the lie that there is an organic recovery.


The problems were always too many years of malinvestment and debt saturation, all they managed to do was kick the can a little further.  Seems they realize any more kicking and the Dollar is in serious trouble, and now they see how stuck they are.

Sun, 04/03/2011 - 19:43 | 1130730 bothsidesnow
bothsidesnow's picture

Bingo on the organic recovery. Talking with my cousin today at a family gathering. We both work in the A&E industry. She said 2009 terrible (me too I didn't have a job for the first time in 30 years), 2010 was better, but so far 2011 is starting look terrible because the of all the state, local, and federal work that is not happening or being put on hold.  

I'm a fundamental investor and the fundamentals tell me that money will be created to finance the debt of the Federal government. I also agree that some sort of "event" will occur to scare people into going along with the program once again. Either way - monetize the debt or create an event - PM's are the place to be.

Sun, 04/03/2011 - 17:03 | 1130381 TexDenim
TexDenim's picture

Don't we learn from the past? Paper money is only money as long as people believe it is money. If you print enough of it, they stop believing. Zimbabwe Ben surely understands that? Then why does he behave the way he does?

Sun, 04/03/2011 - 17:08 | 1130401 NOTaREALmerican
NOTaREALmerican's picture

There are 4 possible answers:

1)  Ben is a sociopath working with the rest of the sociopaths to loot the country right under the noses of the dumbasses.

2)  Ben is a fool who is being manipulated by the sociopaths who are looting the country right under the noses of the dumbasses.

3)  Ben is a true-believer in an false economic mythology, and like all true-believers can't comprehend reality.

4)  Ben is a really smart guy - like Paul Krugman - and you and everybody else on this site is wrong.

Sun, 04/03/2011 - 17:24 | 1130445 A Man without Q...
A Man without Qualities's picture

I'll go for options 2 and 3...

Sun, 04/03/2011 - 17:23 | 1130447 knukles
knukles's picture

I'll take "All of the above, it doesn't really matter anymore" for $100, Alex.

Sun, 04/03/2011 - 17:33 | 1130462 Molon Labe
Molon Labe's picture

Or, what I would like to believe, but don't know one way or another:

5) Ben knows we're screwed, knows his policies will fail catastrophically in the medium to long term, and is hoping to get lucky by throwing the Fed equivalent of a Hail Mary as opposed to suffering lesser, but still catastrophic, losses now.

Let's suppose you were faced with the following choice:

1.  You can take one bare knuckle full force uppercut from Iron Mike today; or

2.  You can take two bare knuckle full force uppercuts from Iron Mike three years from now.

You might decide to wait the three years and try your luck as to whether Iron Mike isn't around in three years.  If you spent the next three years trying to engineer Iron Mike's death or reduce his capacity to land a devastating punch, you might increase your odds of survival.

While many of us believe Ben is mistaken, it's hard to know an unfamiliar person's true beliefs and motivations.

Sun, 04/03/2011 - 18:14 | 1130536 RockyRacoon
RockyRacoon's picture

I'll go for a combo on this one:  He's a gullible yet clever, sociopathic, idiot.

Sun, 04/03/2011 - 21:32 | 1130961 akak
akak's picture

In complete contrast, I believe Ben is a cleverly idiotic, gullible sociopath.

Sun, 04/03/2011 - 18:36 | 1130576 Snidley Whipsnae
Snidley Whipsnae's picture

1 and 3

Sun, 04/03/2011 - 20:14 | 1130792 eddiebe
eddiebe's picture

Solid #1; hands down.

Sun, 04/03/2011 - 20:35 | 1130847 disabledvet
disabledvet's picture

or option 5:  "he plans on resurrecting the TV show Just Shoot Me."  I do miss that show...

Sun, 04/03/2011 - 17:02 | 1130383 NOTaREALmerican
NOTaREALmerican's picture

...  just what will prevent the outright second insolvency of the US banking system?

What is a "Keynesian Perpetual Debt Machine?"

I'll take Ponzi finance for a trillion, Alex.  

Sun, 04/03/2011 - 17:19 | 1130430 kito
kito's picture

soooo, bernanke and co. is just going to allow qe2 purchases to end without a designated hitter? the fed shirley is not lacking in such requisite shrewdness as to let it fly on a wing and prayer. qe2 purchases will only end because the fed knows exactly who will be stepping up to buy and and how much. just as the world central bank oligarchy came to aid of their japanese brethren, such will be done here to allow for the great game to continue........ 

Sun, 04/03/2011 - 17:21 | 1130434 davepowers
davepowers's picture

the next question is were does the FED get the money to buy this Treasury paper.

They have alternated between two methods. One, is to borrow money from the Treasury. Yes, as absurd as this sounds, under the Supplemental Finance Program, the Treasury borrows money via treasury sales and lends it to the FED who buys assets with it. At its peak during the initial QE (they were buying MBS) the Fed borrowed $550 bn this way. And in all of 2010, 100% of expansion of the Fed's balance sheet ($194 bn) was financed this way.

The second method is to type up bank reserves. The FED has shifted in a big way to this method in 2011. Reserve typing not only paid off the SFP (almost $200bn), but QE purchese and for good measure they paid for well over $100 bn in covering Treasury checks for govt. operations via the Treasury's checking acct at the FED.

This means that reserve typing, a form of printing, does not have to stop even if the FED ends QE. That is, the FED can type reserves to cover Treasury checks.

This is important because bank reserves are not passively 'sitting there' at the FED.

Via the Fed Funds market, securities lending and related repo agreements, these supposedly idle reserves can be borrowed and lent back and forth and, imo, probably provide fuel for banks and hedge funds to engage in speculation in profitable (for them) markets - and the most profitable markets recently have been those involving stock and commodity speculation.

Sun, 04/03/2011 - 18:21 | 1130543 RockyRacoon
RockyRacoon's picture

I'm not smart enough to fully comprehend the breadth of your analysis, but it shore sounds good!  Looks like the Fed has a bag-o-tricks yet to be foisted upon the unsuspecting populace.  Clever buncha pricks, ain't they?   O' course if I didn't have anything but that to do all day I could come up with some nice parlor tricks as well.

Sun, 04/03/2011 - 19:47 | 1130741 PragmaticIdealist
PragmaticIdealist's picture

You mind explaining 'typing up reserves'?  Sounds like you are referring to the standard QE operation (converting member-bank assets to cash and putting those assets on the Fed's balance sheet).

Sun, 04/03/2011 - 23:16 | 1131238 davepowers
davepowers's picture

That's one of the ways that bank reserves increase. the FED pays for the MBSs or Treasury paper by 'crediting' bank reserves at the FED. Bernanke said it last year before Congress. They pay for QE by a data entry increasing bank reserves.

Basically, there is a keypunch operator in the basement who types in a number on the liability side of the balance sheet. Popping up as an asset on the banks' balance sheet.

But, they also do keypunching to pay the FED's other bills, including covering checks the Treasury writes for govt. operations on the Treasury's checking account at the FED.

Imagine you had somebody to cover your checks.

In a five week period, these typed up reserves went from 1.08 to 1.38 billion. Three hundred billions. Five weeks. All showing as assets on the books of the banks in question.

The official line is that these reserves just 'sit there,' collecting the small interest the FED pays on reserves held at the bank.

Do you believe that the banks and associates would ignore the advantages to be had from an extra $300 billion of 'assets' springing up in 5 weeks? And that they wouldn't have refined but complex investment strategies to exploit same? 

Mon, 04/04/2011 - 00:15 | 1131371 RockyRacoon
RockyRacoon's picture

I recall the testimony of one of the mortgage brokers who stated that they had an actual key on their computer keyboards which they simply hit to credit funds to the banking account.  It's just that simple.

Mon, 04/04/2011 - 00:27 | 1131398 davepowers
davepowers's picture

yes, that

maybe key f1 or f2 or one of the other f keys

whichever one they use, i'll bet it's worn the heck out

and some poor soul of a keypunch operator has an index finger that's measured in millisieverts 



Sun, 04/03/2011 - 17:40 | 1130459 Silver Alert
Silver Alert's picture

What the author didn't mention is that some, perhaps a lot, of the Indirect (foreign), cough UK cough, and Direct, cough Household cough, treasury purchases are suspected of being back door Fed purchases. So this would make total monetization > 83.4%.

Sun, 04/03/2011 - 17:50 | 1130499 Mr Anderson
Mr Anderson's picture


I just remembered we are going into an election year.

What the devil is Obama to do?

Sun, 04/03/2011 - 19:03 | 1130627 sabra1
sabra1's picture

c'mon, 19 more months until elections. when will americans finally wake up, and just stop voting? until you take control, nothing changes, it's time. since i'm canadian, i'll have to watch you guys on CNN. i'll be rootin' for you! 

Sun, 04/03/2011 - 20:27 | 1130822 NOTaREALmerican
NOTaREALmerican's picture

Re:  i'll be rootin' for you! 

Ain't gonna happen, we've been traveling down the road of applied-socialism / crony-capitalism / fascism for 50+ years now, so voting (or not voting) no longer matters.   Beside, as long as the world's most gullible peasants THINK they have a democracy ('n free-enterprise 'n freedom 'n democracy) - or better yet, think they can get in their way-back machine and have their fantasy 50's again (when the Big-MIC socialist scam got the ball rolling), then that's all that matters really.   Red Team Blue Team fight fight fight...   Go TEAM!


You Canadians better be watchin' yer-selves up there, we might be come-in up to liberate some water pretty soon.  

Sun, 04/03/2011 - 17:54 | 1130505 Verstehen
Verstehen's picture

The History of the “Money Changers”

Sun, 04/03/2011 - 18:17 | 1130540 Pseudo Anonym
Pseudo Anonym's picture

verstehen sie deutsch?

Sun, 04/03/2011 - 18:59 | 1130611 Verstehen
Verstehen's picture

yes because I am German

Sun, 04/03/2011 - 18:20 | 1130549 nobodyimportant
nobodyimportant's picture

Why does Ben keep printing?  Because there is no viable option.


QE to infinity!

Sun, 04/03/2011 - 20:22 | 1130812 eddiebe
eddiebe's picture

Why does Ben keep printing?.. Because he can.

Sun, 04/03/2011 - 18:45 | 1130587 Atomizer
Atomizer's picture

Boo. BIS/National Security/Obama


Sun, 04/03/2011 - 19:07 | 1130630 Carl LaFong
Carl LaFong's picture

Let's face it, the FED cannot and will not stop monetizing the debt. After a month or a very few months of re-investing all treasury and mbs rollovers, the Fed will be forced to announce QE3 as the interest rate will be creping up without their doing anything and everyone will realize they are the only real buyers left. At that point any pretense of USD strength for any reason will be out the window and some serious USD debasement will follow. Inflation will ensue in a serious way thereafter and commodities and the PMs will start some very serious moves. The US consumer, the engine of "growth" will then begin to suffer in earnest; food stamp use will surge to 50 million or more; gas will be $5.00+ and the US middle class will continue its FED designed descent into third world status. Shit....this sucks.

Sun, 04/03/2011 - 20:32 | 1130839 samsara
samsara's picture

"Let's face it, the FED cannot and will not stop monetizing the debt..."

How about let's all start phrasing it.

'Let's face it, The Owners of the FED cannot and will not stop monetizing the debt...'

Let's shift the focus. Why curse the glove?

Sun, 04/03/2011 - 19:08 | 1130640 Waterfallsparkles
Waterfallsparkles's picture

Not sure it will matter.  If every Country is doing the same thing, then prices will go up all around the World.  Eventually, incomes will rise, house values will go up and everything will be ok.

I believe that if anyone survives America will.

Sun, 04/03/2011 - 20:32 | 1130840 NOTaREALmerican
NOTaREALmerican's picture

Re: I believe that if anyone survives America will.

Depends.   If our nobility looks out MORE for our peasants than other country's nobility do theirs, then the Merican peasants will do better.  However, other countries at least have some common ethnic identity which the nation's nobility share with their peasants.  The Merican nobility might despise their peasants more, as they have nothing at ALL in common with them.  

Too bad we sunk so low that we need to rely on the nobility to keep the peasants alive.  

Sun, 04/03/2011 - 21:38 | 1130977 akak
akak's picture

Not sure it will matter.  If every Country is doing the same thing, then prices will go up all around the World.  Eventually, incomes will rise, house values will go up and everything will be ok.

So if I shoot my neighbor in the head, while he simultaneously shoots his neighbor in the head, while that neighbor shoots HIS neighbor in the head, while that third neighbor shoots yet another neighbor in the head, while that hapless clod shoots a fifth neighbor in the head, while that guy shoots ME in the head .... then we are all equal, and everybody is OK?

Sun, 04/03/2011 - 19:08 | 1130645 Bansters-in-my-...
Bansters-in-my- feces's picture

Must be nice to have the "world reserve currency"

What a sick fucking joke.

Where do I buy shares in the bank that controls it ?

Sun, 04/03/2011 - 19:35 | 1130708 deagle44
deagle44's picture


Sun, 04/03/2011 - 19:16 | 1130658 deez nutz
deez nutz's picture

Its all a part of "end game"! 

they are going to continue to pull out all the stops until the final collapse is encountered.  Look at your average azzhole buying a new Dodge Ram w/free upgraded "hammy" while the world is catching on fire and his job is no safer than a Fukushima reactor.   In the end game that is a big time score.   They have many retards buying real estate again and talking how good deals abound.  Sheeple still hoping for a big time score from a 401(k) can just about laff until you cry how fukking stupid the people of this country are.  They just ask to have their asses handed to them so fukit, hand it to them! 


Sun, 04/03/2011 - 19:18 | 1130667 the grateful un...
the grateful unemployed's picture

according to Heritage Foundation, tax revenues are at record highs (actually they are the same as they were in 92, SO.. that means our economy is running along at 92 levels) Federal Spending since 92 has nearly doubled. MOST OF THAT is bailout money, and the endless wars (now three endless wars at once).  The Fed is monetizing 20K per household 16,500 tax revenue, and 36000 federal spending. 

According to their chart (and I believe these guys, they are the only ones with the guts to tell us what the Chinese military is doing) on spending on entitlements, 7.5% from 1992 to 24% currently. Where is the 100% rise we see between tax revenue and spending since 92??

the real question, ducklings is where is the money going? I leave it to you, but some sumabea-attaches are getting wealthy, and the rest of us are still working and living like Bill Clinton just got elected, (and by the way the prediction for where the economy finally lands is somewhere in the 1970's, along with oil prices. Get out the generic toilet paper, martha , I have to take a crap!!)

Sun, 04/03/2011 - 20:24 | 1130819 samsara
samsara's picture



Xe et al

etc, and all other three letter acronyms.

Sun, 04/03/2011 - 19:41 | 1130694 Waterfallsparkles
Waterfallsparkles's picture

Just maybe we will all go back to a more simple world.  Where we consume less, cut expenses to the bone.

I remember when only the Husband worked.  The wife stayed at home.  I remember when we did not have Big Screen TV's, Faxes, Copy Machines, Answering Machines, Cell Phones (heaven forbid), Video On Demand, Cabel, TV Dinners (OMG am I dating myself), 2 cars in a family, Fast Food, Dishwashers, even Dryers for our clothes (dating myself again).

Yet, when you think about it what have we gained?  Not a lot.  No family dinners everynight, no time to play games or cards with our family members, children do not even play outside anymore, I remember as a child going out a dawn and comming home at dusk, we played all day.  Mom was home anytime you needed her, for comfort if you got hurt or just to talk to.

We had street vendors selling vegtables and Watermellon, a grocery store at the end of the street.  You were not afraid to ride the bus anywhere.  The women would go down town to shop every month and would have the store send everything home for you. You had home delivery of Milk, Bread, Eggs, Donuts, store purchases.  If you did not have the money to buy someting you would put it on will call and would pay toward the item every month until you paid it off and then they would deliver it to you.

We canned vegtables, fruits, made our own cakes, biscuits from scratch, we pealed potatoes and boiled them for many different variety of meal ideas.  We made our own clothes, draperies, quilted our own bed spreads.

Why is everyone so afraid of going back and living the way things used to be.  Things were so simple then, no cable bills, no cell phone bills, electric bills very low, no appliances, smaller houses, less energy, no second car bills, no wardrobe for the wife to go to work, no daycare as mom was home, no prepaired meals or takeout. They were not only not bad they actually were good and built family values and strength.

I will not be afraid as the change could be our salvation.

Sun, 04/03/2011 - 20:24 | 1130815 samsara
samsara's picture

OMG yes.  we went to different schools together.

I remember all those things.

At the start of it, early 60's colleges actually thought that future occupations would include Recreational Management because of all the 'Time saving Devices and process improvments"  people won't have to work as much and will have lots of time off. 

See how that one was nipped in the bud,  Something like the "Peace Dividend"  Meme.


Sun, 04/03/2011 - 20:38 | 1130851 eddiebe
eddiebe's picture

The problem is the journey between here and to your scenario. People back then knew how to do things for themselves. You look under the hood of your 2.3 cars lately? And you can't just give the doctor a chicken for setting your kids broken bone. 

 You get the idea.. Now everything is totally specialized. And the sharks have figured out about 23000 new ways to stick it to you since then. 

Oh and try telling your teenager to go milk the cow. Hahahaha

Sun, 04/03/2011 - 22:32 | 1131116 the grateful un...
the grateful unemployed's picture

not unless it's a fifty thousand dollar chicken (new barter economy)

Mon, 04/04/2011 - 08:50 | 1131805 Waterfallsparkles
Waterfallsparkles's picture

You are right.  My Husband could fix the car, the washing machine, the dryer, the toaster, the TV.  The men then would build their own club rooms, the children s toy boxes, the shed, the roof, the plumbing, broken windows, etc.  If a Man did not know how to fix something he would go the hardware store around the block with the parts and they would either help him fix it or tell him how to fix it.

After my Divorce I even remember those Hardware stores.  I had a leaky faucet and they lent me a seat puller, told me how to use it and told me to bring the seat back to them and they would replace it.  Heck the part was only about $3. but they really went out of their way to help.  Same with a broken window.  They also taught me how to replace a heating element in my water heater. Just measure and they would cut the glass for you to fit.  Just try the above at the current Home Depot. 

My previous post was from a Woman's perspective but this was not to downplay the roll the Man of the house had.

Sun, 04/03/2011 - 20:38 | 1130854 disabledvet
disabledvet's picture


Sun, 04/03/2011 - 19:53 | 1130755 Long-John-Silver
Long-John-Silver's picture

Silver just went over $38.

Sun, 04/03/2011 - 20:40 | 1130855 disabledvet
disabledvet's picture


Sun, 04/03/2011 - 20:30 | 1130838 GOSPLAN HERO
GOSPLAN HERO's picture

Buy silver, comrades.

Sun, 04/03/2011 - 20:48 | 1130872 disabledvet
disabledvet's picture

As reported here at ZH and only here:  "reverse repurchase agreements."  in short "it ain't always free."  and the Fed can just end it, too.  I can now see something other than the "exploding debt vomit projectile" insofar as treasuries r concerned.  bankrptcy is not a thing of past however--hence "default to growth" yet again. pros understand what i say.  sorry to use silly words like "natural gas" and "the cloud" and "solar stocks."

Sun, 04/03/2011 - 21:04 | 1130910 Brevard Times
Brevard Times's picture

Hidden tax of the masses f/b/o the crooked elite.

Sun, 04/03/2011 - 21:49 | 1131009 InconvenientCou...
InconvenientCounterParty's picture

Brilliant work ZH.

Can't create money from chaos? Admit it, you're jealous.

Mon, 04/04/2011 - 00:10 | 1131362 sbenard
sbenard's picture

"Bubbles" Bernanke was right! We're NOT monetizing the debt! Only 83.4% of it!

Do NOT follow this link or you will be banned from the site!