You're now on the archive server. Commenting has been disabled.
Open Market Operations And Statistics
Zero Hedge stirred up a hornet's nest recently by bringing to popular attention Chris Martenson's post highlighting the very rapid "uptake" via Permanent Open Market Operations of a Treasury CUSIP that had been auctioned off shortly prior. The article angered among others such bloggers as former employee of the NY Fed John Jansen who penned a post titled "Monetizing the Debt: Disinformation in the Blogosphere" whose conclusion was that despite the 5 day turnaround to monetization of the particular 7-year CUSIP which represented roughly 47% of the total purchased by primary dealers "there is absolutely nothing unique or special about today’s transaction by the Open Market Desk." Subsequently Jansen proceeds to nitpick semantics but we will let that slide as it is not relevant for the time being.
Yet what neither Jansen, nor Yves Smith, who picks up the baton and calls Zero Hedge's style "hyperventilatory" (we most certainly do not mind - our style such as it is, hyperventilating or otherwise, at least brings broad attention to topics which may or may not be of relevance to the general public, as opposed to a closed group of highly sophisticated economists and financiers who enjoy debating among each other and perpetuating their closed group relationship, with no informational leakage into the broad arena - a theme that has persisted for many years and is significantly counterproductive to the ambition of bloggers to be an alternative venue to mainstream media), focus on, and what was the primary argument of my, and Chris Martenson's post, is that Ben Bernanke is essentially monetizing debt, despite potentially perjurious claims to the contrary, all within the legal framework of primary deal intermediation and the disadvantaging of indirect dealers (who are very hard to be seen at the table these days as is). Neither Jansen nor Smith point out the fact that a primary dealer, whoever it may have been, would purchase CUSIP 91282LD0 on July 30, and then sell it at a loss less than a working week later (purchased at 99-26 and sold at 99-07). Absent a backstop from another entity it would seem a rather imprudent thing to do from a fiduciary point of view, especially with such a brief turnaround timeframe: primary dealers have the balance sheets to be patient when they acquire Treasuries.
All that being said, Zero Hedge decided to perform a statistical analysis of time series variance between Treasury auctions conducted in 2009 and the subsequent Permanent Open Market Purchases, in which we analyzed the size of the OMO transaction, the number of days passed between a certain CUSIP being auctioned and becoming purchased by the Fed, the percentage of primary dealer purchases as a total of the entire Competitively Accepted amount, and the percentage of the Primary allocation that would end up being purchased subsequently by the Fed in the OMO-to-Auction timeframe. The results were surprising.
But first, I will present the data set that Zero Hedge created with the assistance of reader Phaesed. The chart below highlights all Bond (not Bill) Treasury Auctions conducted in 2009, segregated by auction date, and highlighted by tenor.
Some datapoints: there has been $1.1 trillion in Bonds offered YTD, of which $1,156 billion has been accepted. Of this total, $600 billion has gone to primary dealers. The primary allocation has represented a (simple) average of 55% of the total bonds allocated competitively. For readers who would like to play around with this data, it will be posted shortly to google spreadsheets for open source enjoyment.
Next, Zero Hedge compiled all the YTD Open Market Operations Data, and filtered it by Bond issues auctioned in 2009, and subsequently purchased by the POMO program.The raw data is presented below:
Some facts: the Fed has purchased roughly $240 billion in OMO since QE was announced in March: on par to purchase $300 billion as the program was initially intended to expire by the end of September: according to media reports as of now there will likely not be an extension due to the "improving economy." (We have not focused on agencies in this report: we will perform that analysis at a subsequent date, yet one can argue the vast majority of Fed buybacks has occurred in the MBS realm)
Of this $240 billion, almost half, or $112 billion has been targeted at treasury issues auctioned off in 2009. The chart below demonstrates the global universe of all OMO purchases of 2009 issues indexed by total purchase size, as well as number of days of OMO transaction since original auction (horizontal axis) - this is the key topic in question, which both John and Yves seem to take offense to. Of course, while a normal distribution would not show a significant preference to a lumped clustering, the vast majority of the treasuries purchased by the Fed has been within a few weeks at most of the original Treasury auction.
The size of the various circles is a relative indication of the percentage the OMO purchase representated as a function of the original primary dealer allocation: potentially an indication of how unwilling the primary dealer may have been to purchase a given issue absent a backstop guarantee from the Fed that shortly after the auction the issue would be acquired via OMO.
As the chart is somewhat noisy on the tail end, we have cleaned it up once by removing any OMOs that were less than $1 billion in size. The data is as follows:
What becomes notable is the mentioned clustering around the proximal side of auction-to-OMO time, with greater amounts purchased by the FED for CUSIPs that had large primary dealer allocation.
Last we perform one final filtration of the data, to remove any issues that were repurchased by the Fed more than 30 days after the Treasury auction:
The startling conclusion: $32 billion of Treasury Bonds spread across 7 CUSIPs, were purchased by the FED within 10 days of their initial auction and allocation to primary dealers. The amount purchased by OMOs represents an average of 32.4% of the total allocated to primary dealers in the respective auctions. Furthermore, almost two thirds of total OMO Operations for bonds issued in 2009, or $62 billion, affects Bonds issued within 30 days of the OMO purchase. These purchases account for a total average of 29% of the total amount allocated to primary dealers. While one may make the argument that on the run bonds are preferred on average by the Fed for purchasing and by the primary dealer community for selling, the data presents a marked skew in the Fed's desire to monetize very recently issued Treasuries.
The key questions remain: allocations to primary dealers in 2009 Bond auctions is an undisputed majority (55%) of all auctions - this is troubling due to the the recent change in the definition of indirect purchasers as well as the markedly reduced interest of foreign buyers such as China and other indirects, for US Treasuries. Could a reason for the Chinese lack of appetite be due to the fact that while primary dealers represent not just a majority of all Treasury purchases, that these dealers may also have an implicit understanding that come hell or high water for auctions that lack indirect interest, the Fed could potentially make any dealers whole on purchases and subsequent sales at a loss such as the highlighted CUSIP 91282LD0 example (explicitly, at a loss for taxpayers who have to fund the primary dealers shortfall, in this case the difference between 99-26 and 99-07)? Would the Chinese be interested in playing in a rigged playing field when indirects are potentially impaired vis-a-vis direct purchasers? Furthermore, is Bernanke pulling a Clinton and while claiming under oath the he is not monetizing debt, he is effectively doing just that on well over $30 billion in Treasuries, which the Fed acquires within 10 days of issuance? And lastly, is the rapid uptake by the Fed a means to goose up auctions which have a potential likelihood of failure: the 7 Year in question came hot on the heels of a 5 Year that for all intents and purposes was quite close to a failed auction? Absent an implicit backstop, which everyone knows the Fed is very keen on making these days: as the SigTarp demonstrated, to the tune of tens of trillions of dollars, what is the likelihood the 7 Year would have fared as well as it did, had not the primary dealers really stepped up, for reasons known and unknown.
Zero Hedge is not making any claims, but merely asking questions. And while we appreciate the opinions of self-professed experts such as John Jansen, these answers should really come from the proper authorities - the US Treasury and the Federal Reserve of the US.
As time allows, Zero Hedge will next conduct a comparable study on Agency and MBS debt repurchases by the Federeal Reserve.
»
- 21774 reads
- Printer-friendly version
- Send to friend
MMM, Tyler if you were a piece of bacon I'd dip you in chocolate and sell you at hillbilly carnivals.
I was going to say something to that effect, but not nearly as amusing...
Lies!!
Heresy!!!
I don't believe!!!
What are we not believing? That hillbillys would pay money for chocolate dipped anything? For God's sake they pay money for a deep fried candy bar...think about it...there is your consumer driven icon....
I don't think you can credit hillbillies for the deep-fried candy bar. The fried Mars bar was a British invention. We've just copied it, as we have with so many things British.
Wow Tyler, a bunch of space monkeys! Ready to sacrifice themselves for the greater good. I'm impressed!
Listen up, maggots. You are not special. You are not a beautiful or unique snowflake. You're the same decaying organic matter as everything else.
What part of the market isn't being propped up by the fed/and or treasury?
The end of QE should be interesting.
I would love to see what the Agency and MBS numbers look like.
I hope you continue to hyperventilate in the manner to which i have become accustomed(and frankly adore). The type of research presented herein, is why you should have the following (and perhaps the ego) that you do.
well, it isn't going to be pretty, esp if, like thy reportd on bloomberg recently:
fed=10% tresury market
fed=25% mbs market
compared to the results posted in this post, I bet those mbs #'s are going to be interesting.
http://www.youtube.com/watch?v=n0NYBTkE1yQ
25% 0f MBS market? try 95%. seriously.
Does anyone have exact numbers on this - the fraction of GSE debt and treasury debt the fed is buying? It'd make for an interesting future post.
lizzy36:
If you still believe in Freud, you certainly got your compliment right even though might have ment to say superego. With the ego in control, what you get is; "..Just the facts ma'me, Just the facts."
It appears to me that the republic can be safely handed off to the next generation.
I just read the Keynes-worshiping book Lords of Finance, which includes a profile of 1930s German central bank chief Hjalmer Schacht. After reading this post, I began to think of Bernanke as a Schacht-lite.
yes but the main difference between Bernanke and Schact is that Schacht was capable in transforming Germany from basically a third world country to an industrial superpower in a time period of 10 yrs .... Bernanke is a moron, Schacht, on the other hand, was not ..
how is bernanke a moron (in that respect)? or do you think he is going to transform us from an industrial superpower to a third world country in a matter of 10 yrs, if he is reappointed?
your reasoning is false. I have not state that in my comment; that is your false premise drawn from my critical observation about Bernanke and Schacht. Bernanke is, with all due respect, a moron because he is following his dogmatic view on the causes of the Great Depression and it is implementing that view in his policies in present time. If you did more research about Schacht, you would see, how his monetary and economical polices strengthened Germany's power in post-Versailles era and derailed the long term effects of hyper inflation experienced because of the Treaty of Versailles .... Schacht was, a goddamn Nazi, but that does not mean that the he was not a brilliant banker.He understood the power of a strong banking system combined with powerful industrial output and industrial base. Bernanke on the other hand is not so brilliant, because if you took your time and red the things he wrote about the Great Depression, you would see that Bernanke is nothing more than neo-Keynesian banker, who carries a premise that monetization and QE + government spending can short the duration of this Depression. He does not take into consideration the future ramifications of that kind of policy. It is like he doesn't even think about the taxes that would need to be raised just to finance the debt in the upcoming years, and as if he does not understand the difference between the effects of private and public spending ..
You would consider Bernanke a moron if you thought he really beleived what he says. The guy is a charlatan, a wizard of sophistry. Do you really think he's that stupid? Do you really think that Bernanke beleives in QE? His work on the depression merely gives him the grounds to execute his handler's objective. That is to destroy the dollar and create the opportunity to construct a new world monetary system. Youre on point with the economics Cheeky Bastard....but have you considered the motive? Bernanke isnt a moron...he's just trying to kill the dollar and make it look like it wasnt intentional.
im not going into hidden motives he and his masters have. i judge by what i see and what i know, and i know that Bernanke is doing it wrong. his goal may be the destruction of the dollar, but that is simply idiotic, because, he can establish a one currency global system without destroying the dollar, he can introduce new currency trough the IMF and the WB, which then, can make obligatory to use the new currency as a way to trade among nations and private entities. and he can also, trough the IMF and the WB set the obligation that all dollars be replaced for the new currency issue in some mechanism from which the US can profit ... if the destruction of the dollar is the real goal here, it can be done in a more elegant and profitable way then blowing the world economy into the upper atmosphere ...
If his thesis proves false, can we at least revoke the Ph.D.? And if it is revoked, can we then get rid of him?
lol ... check this out, someone edited the article on ben on wikipedia ... hahahha
Bernanke was educated at East Elementary, J. V. Martin Junior High,somalia, and pillon High School, where he was class valedictorian. At age 11, Bernanke won the state spelling bee competition but finished 26th overall at the national competition in Washington, tripping up on the word “edelweiss.” Bernanke also taught himself calculus, edited the school newspaper, and achieved a near-perfect
http://en.wikipedia.org/wiki/Ben_Bernanke
Cheeky, they clearly came for a knife fight. Please, put away the shotgun.
the problem with this argument is the debt remains. Destroy the dollar, close the banks and the debt is obliterated, Argentina style.
Maybe that's the plan:
http://www.oftwominds.com/blogaug09/KaPoom2CHS.htm
I'm not sure Bernanke is neo-Keynesian. Certainly Keynes would not have given approval of Bernanke's behaviors or actions.
That said, I'm not sure what I'd define him as. Friedmanesque, possibly, believing the money supply is nearly be all to end all. Though I'm not sure where Friedman would ever have approved of the degree of actions he has taken.
I also doubt he is stupid. Stupid would mean he is incapable of pulling off even the most subtle of challenging events. He clearly has pulled this off quite nicely - and with little coverage (save ZH's). I'd say he is a "political tool seeking to retain his position in an administration which does not admire his talents", which means he's basically an Obama policy monkey, rather than a shaper of policy.
germany was no more a 3d world country after
ww1 than hitler was a good jew....germany was
exhausted and prostrate but that is quite a
different state than being a 3d world country
from organic causes....it still had colonial
posessions and no one occupied germany as
a colony.....
i suspect that germany would have recovered no
matter who lead it although schacht may have
had a more beneficent influence than others...
you have got to be kidding me. First of all, Germany had no stable financial system and no defined economical program. Second of all the reparations which were meant to be payed gobbled most of Germany's budget. Third, Germany had no colonies, except some part in the North-West Africa, and that was lost in the Treaty of Versailles and was given to France. Forth thing is that there was no valid infrastructural net which could unify the country and facilitate economical development. The first highway was built during Schecht position in Deutsche Bundesbank ( later Reichsbank ) and Ruhr-Westphalia was industrialized so it could fully exploit the potential of its mineral richness. Schacht was there to bring order into Germanys banking chaos and restore some equilibrium necessary for further development of the country. So your little thesis without any arguments holds no water; Schacht was one of the most brilliant European central bankers, and he had accomplished that during one of the toughest periods. Oh and also, he reduced Germany's debt not by borrowing but by improving production and manufacturing output and capacity.
It's amazing, really, how Germany was able to accomplish all of this through an independent monetary policy, using a fiat currency (sovereign credit -- not a metallic standard) with an economic goal of full-employment. Despite the fact that it was in horrible shape, with ruinous war-reparation obligations and no prospects for foreign investment, the German economy was up and running within four years, even before the armament spending began.
yes, thank you, i knew something slipped my mind. one of the main causes of, oh so famous, hyperinflation in the Wiemar Republic was, beside the reparation cost, that their debt was denominated in another currency; that was one of the major flaws, and when they changed the exchange rates from fixed to the price of gold, to floating rates the currency simply imploded/exploded. combining that historical factor with the prevalent economical policies Schacht enacted, the concept of Lebensraum ( Living Space ) was a direct consequence in assuring vast natural wealth as a pool from which raw materials could be drawn. Strategically the Annexation of Poland made no sense, but when one knows that Poland had one of the largest iron ore, and other metal, quantities in Europe that move was completely logical. And Schacht went separate ways with the top officials in Nazi regime when there were visible signs od racial and religious cleansing. up until that point Schacht was close to Hitler, because Hitler was a perfect " pawn " in securing that Schacht's idea of economically strong Germany is enacted.
And, one last thing i would like to say is; dont confuse the political environment in which Schacht was working; just look at what he has done. And it is well documented ( search the internet for transcripts from Nuremberg Trials ) that Schacht was in strong opposition to Hitlers idea of racial purity and the idea that Germans ( Goths, not Aryans, Aryans are a tribe from India which settled in northeast Iran after it was defeated 1000 BC and lost control over India, and who can still be found in Iran settled in a semi-close communities in some areas in Kurdistan ) were superior to other nations. Schacht even spent 4 years in a concentration camp. And i strongly recommend to any of you ZHers who are interested in the role of a central banker to read as much as possible about Schacht and his policies while he was on the helm of Reichsbank. It will give you valuable information about how should a central banker behave in a times of great economic disturbance.
Schacht may have been a Nazi, but that is debatable. His goal was national self-interest and not necessarily party policy management. The fact he wound up in a concentration camp and turned state's evidence at Nuremberg implies that at worst, he was an opportunist (much like Bernanke).
In addition, his goals of improving production and increasing output were as much fulfilled by the work of Albert Speer as they were by his own efforts....though I'd argue Speer was aware of the slave labor he employed to achieve some of these gains, while Schacht most likely was not aware.
All told, however, let's consider our current state of affairs. The primary issue is the increase of the money supply into a deflationary environment. This, in itself, is a "good" thing, though Keynes' called it "pushing on a string". It could have little or no effect. Or it could. And if it does, what would that effect be? Well, for one thing the effect is inflationary...because avoiding inflation is all about timing and supply management. Yet since there are so many sources of money supply out there (bonds, currency, etc.), you can't manage them all. Indeed, the issuance of stock is a money supply which is NOT managed by the Fed.
The question is - can Bernanke manage it the way he says he can? The answer MOST LIKELY IS NO. But maybe he can...I'm sure we all hope and pray he does. But I don't put my future in the hands of hope, like so many people did in November.
Embrace the deflation, my friend, embrace the deflation.
LOL. I expect hyperinflation.
However, I also recognize the next step AFTER hyperinflation is deflation.
Or a new currency.
Germany was only better than a 3rd world country due to its history of growth and stability. By all other measures of political and economic stability, it was a disaster after WWI. It's being kind to say they were a third world nation.
The difference was, they had the political will to rise above their station.
As many soldiers returning from WWII said, they saw more of themselves in Germany than in France or Britain. The German desire to improve oneself showed itself moments after the bombings ended, and they began to rebuild as best they could.
Define third world nation.
The "classic" definition of non-aligned Cold War nations no longer applies, obviously. Nor would it to post war Germany.
The pejorative definition of a "developing" nation would apply to today and Germany.
Being more specific - a nation whose total output is below that of large industrial nations or without a stable political environment.
It's a given Germany faced unstable political situations until the rise of Nazi Germany. This was partially due to economic instability.
Post WWI, it's unclear what Germany's total output was relative to the rest of the world since reliable statistics are unavailable (though many guesstimates abound). What IS clear is that while Germany may have improved its total output, it was a developing nation DUE to war reparations, which were overwhelming the economy. By 1920, this took a very visible form as monetization caused hyperinflation over the next few years.
To say Germany was anything other than a developing nation prior to the cessation of war reparations is to take a leap of faith regarding its place in the world. Third World nations typically see large portions of their output exported - just as Germany was seeing.
wow, TD, this is great. thank you for providing this analysis.
beautiful.
Three points.
***First, Jansen and Yves miss the point that the Federal Reserve may be acting illegally in purchasing at auction using an agent (assuming Jansen's description of the law is right).
Jansen says: "I believe that the Federal Reserve can only buy securities from the Treasury when it rolls over maturing holdings. The Treasury only resurrected the 7 year note in March and consequently the Federal Reserve would have no bonds to roll in the auction. Ergo there lack of participation."
Jansen says it is illegal for the Federal Reserve to buy Treasuries at auction, absent a rollover. Based on Jansen's claim, it is presumably also illegal for the Federal Reserve to purchase at auction using an agent. (The government doesn't bless arson, just because you hire people to do it for you.) Moreover, it is not unheard of for the law to presume that a purchase and resale is wired with the purported buyer acting as an agent of the ultimate buyer. So, why isn't it reasonable to suspect bad intent by the Fed, absent the Fed presenting evidence to the contrary? This isn't a criminal trial, and ZH doesn't have the resources of a prosecutor and police officer.
***Second, Yves and Jansen don't really focus on the impact an auction fail, or successful auction at a higher rate, would have had on the market. If there'd be a big negative impact, why not suspect bad intent, absent the Fed presenting evidence to the contrary? Again, this isn't a criminal trial.
***Third, Bernanke has been drawing a Nixonian/Clintonian distinction about monetization.
Tyler says "Furthermore, is Bernanke pulling a Clinton and while claiming under oath the he is not monetizing debt, he is effectively doing just that on well over $30 billion in Treasuries, which the Fed acquires within 10 days of issuance?"
Yes, I have understood Bernanke's testimony to Congress to mean that he thinks having the Fed purchase Treasury Securities is not monetization if the Fed's goal is to ease credit conditions for consumers and businesses rather than reduce interest rates for the US government.
marla... how do i change my username?
Send her an e-mail and ask...
Change your username if you must but pleaaaassssssee keep your avatar!
Furthermore, is Bernanke pulling a Clinton and while claiming under oath the he is not monetizing debt, he is effectively doing just that on well over $30 billion in Treasuries, which the Fed acquires within 10 days of issuance? <<<<<
TD,
it all depends on what "is" .......is....
Bernanke really said he was not monetizing? How odd. There is nothing scandalous about this, it's what they do. The current scope is unprecidented but for the life of me I can't understand why he would deny it.
What's the counter claim he makes? What does monetize mean?
If someone can link to the Bernake quote I would apprciate it. I want to get the whole context.
Monetizing (printing money to buy your own debt) is one thing... but buying treasuries (with printed money) to 'keep their yield low' is called 'quantitative easing'.
Whoa! It's the same or similar thing.
Someone more qualified may be able to identify whether the money so injected is 'sterilized', or if indeed, this is relevant or makes any difference at all.
e.g. listen at 1:15 in the video link at http://market-ticker.denninger.net/archives/2009/08/06.html (though it is a bit a truncated context)
Can't wait to hear from the experts. There must be a simple explanation that will render ZH concerns completely unfounded and hypochondriacal.
in experts we trust.
Studies show and experts agree that people will believe almost anything if you say "studies show and experts agree that .. " I majored in sales and marketing because studies showed there was a far greater ROI from making people believe they are getting value than actually providing them with it.
-Pump Monkey-
I majored in sales and marketing because studies showed there was a far greater ROI from making people believe they are getting value than actually providing them with it.
You forgot to say "and experts agreed"
I am in sales.
Unfortunately, I do have to provide value, or I will not get a return purchase. If I didn't provide value, I would lose credibility and customers.
I haven't figured out why politicians continually get elected or reelected based on the low value they provide.
You make an excellent point. It is because the people in this country are fools who would rather vote on reality tv shows rather than even attempt to become informed and vote for actual change. Unfortunately it will take an economic fallout of cataclysmic proportions for people to wake up.
Excellent as always.
Q: any pattern that emerges if the set of under 30 Day Since Auction OMO Purchase have a chronological X axis as opposed a Days Since Auction X axis? Do the bubbles tend to cluster around certain negative market events/commentary (negative commnets on the dollar from the Chinese etc)? Have the frequency of these large OMO purchases been increasing?
excellent.
I would like to add extraordinary FX movements into this mix.
Since it's true that this has been standard operating procedure since the Fed adopted the coupon pass as its primary policy implementation tool (buying treasuries, not all this other stuff), the argument that there is nothing new about this can't be categorically dismissed, as far as that goes. IMHO, the important datapoint here is the ratio of these auctions being taken down by the PDs in the first place. Since they are now increasing their take, for whatever reason, including that no one else wants to buy the paper, that's the thing to be hyperventilating about. So, you might consider that by definition, because the dealers are left with more of the paper on their books, that's who the Fed is buying them from. You might want to look at the historical evolution of the SOMA and understand what the historical ownership of US treasuries looks like. Until they did their wacky TSLF facility last year in a vain attempt to shuffle the pea under several shells and convince everyone the banking system was solvent, the Fed has been a rather large owner of treasuries, which might tend to lead one to think these benchmark rates have long been ridiculously distorted.
Indeed. It would add sauce to the goose as to how the Fed plans to extricate themselves from QE with so much long dated paper, especially MBS on their books or under their direction.
CONGRESS WHAT MORE PROOF DO YOU NEED?!?!?
AUDIT THE FEDERAL RESERVE RIGHT FUCKING NOW!!!!!!
You math nerds have fun for a while. I'm gonna take a nap and hope I catch a live spinsession tonight.
This discussion is so over my head even while I try comprehending it.
Oh, well.
From Wikipedia
Monetizing debtIn the United States, and in many other countries, the government does not have the right to issue currency to pay its bills. In this case the government must finance its deficit by issuing bonds to the public to acquire the additional funds to pay its bills. However, if these bonds do not end up in the hands of the public, the only alternative is for them to be purchased by the central bank. For the bonds not to end up in the public hands the central bank must conduct an open market purchase. This action by the central bank increases the monetary base, through the money creation process. This process of financing government spending is called monetizing the debt.[1] Monetizing debt is a two step process where the government issues debt to finance its spending, the central bank purchases the debt from the public, and the public is left with high powered money. When government deficits are financed through this method of debt monetization the outcome is an increase in the monetary base, or the money supply. If a budget deficit persists for a substantial period of time, then the monetary base will also increase, shifting the aggregate demand curve to the right leading to a rise in the price level.[2]
To summarize: a deficit can be the source of sustained inflation only if it is persistent rather than temporary and if the government finances it by creating money, {through monetizing the debt}, rather than leaving bonds in the hands of the public.
You may want to utilize other resource references to make your point.
http://www.deepcapture.com/do-i-live-in-a-synthetic-reality-do-it-yourself-home-test/
Just helping a brother out
Precisely what is wrong with the wikipedia explanation? I find people who criticize wikipedia intellectually dishonest. How is wikipedia any less valid a resource than this website?
...Ever try correcting an erroneous Wikipedia article, or adding something to an existing article?
If not, then you have yet to meet the gatekeepers of "All That is Factual According to the Wikipedia Editors".
I have done this. I've found the editors to be rather fair.
They won't go in for conspiracy theory, unless it is denoted as such, but they will allow factual data. I've updated several things on Wikipedia with facts - all of which are still there.
I'm afraid, and I'm sorry to say this because I don't believe it, that most of what is written here at ZH is considered "conspiracy" because it "hasn't come true yet". Or at least "hasn't been proven".
I have to admit, when I first arrived, I felt this was a borderline tin-foil hat site. It was only after I'd read some "predictions" which subsequently came true that I was convinced. These weren't predictions so much as absolutes - it was pretty clear GM would fail, after all - but the government was saying "NO, NO, NO" and ZH was saying "we have it on good evidence from internal government sources". Which to me posits a connection, if you will, to good information.
It's pretty clear by now that TD is well connected, is well versed in market behavior, has some kind of finance/economics degree or experience, and that he is worth AT LEAST listening to.
In the meantime, anyone on this site is likely to wind up listed at flag@whitehouse.gov as a purveyor of disinformation.....as our new leaders prepare to figure out how to deal with us.
Indeed. TD and FC get the benefit of the doubt.
I love this site, but I think TD, et al are a group of folks sharing the pseudonyms...
the volume of analysis does not seem possible for an individual...
that said, keep up the good work...
Ben has a Special Double-Secret Prevaricator's Permission Pass, so... these aren't the correlated POMO transactions you are looking for...
You're a brave man, Tyler, goading the B-man that way. Just remember, Timmay's got a Rancor downstairs. Ubu.
It does not do much good to attempt to set the example by sitting on the porch..
From my admittedly neophyte position I would like to ask the government that is about to be formed in Japan what they consider to be the time frame for an "immediate" or at auction purchase by the US Central Bank and how these trades might effect their purchases of UST going forward. I am asking this because I suspect from reports and the whisper that the new government there may well consider denominating all of their purchases, either central bank or public pension operations in yen.
I would be interested in discovering if there might be swaps of national debt between the primary international banking establishments in lieu of currency as a side to the Libor market for the obvious reasons.
Interesting analysis TD.
I've read some of John Jansen's articles on seekingalpha and he seems like a straight-up guy. Maybe he's simply out-of-the-loop as to what is currently going on?
Naw...
His commentary in the media, including SeekingAlpha is an attempt to diffuse any discussion of the material that is being presented here and elsewhere. For a media blitz to be effective the speaker must come across as a straight up, plain speaking sort of person. Especially when discussing a nonsimplistic topic such as this one.
he spent much of his career at the Fed, nuff said.
John has never responded to any of my comments or questions to his articles on SA. He seems unwilling to press questions regarding the effect of monetization on Treasuries. He halfheartedly takes up the topic in one post and then drops it.
It has always perplexed me why the auctions lack so much transparency. As much a Bernanke claims that the Fed is transparent...it's really not. If the Fed put all the data in user friendly graphs and charts, as ZH has wonderfully done for us, then China would probably realize what a farce the US balance sheet really is. Rates would explode overnight......Good Job ZH. Awesome work.
Quick (noob) question.. why would rates explode overnight? I can't seem to think of an explanation as to why that would occur. Thanks.
Rates increase when there is less demand.
Peace.
Sure, but then the Fed just increases the rate at which it monetizes the debt.
The Fed monetizing debt should concern everybody. They are a private corporation. What happens when the Fed, through quantitive easing/monetization, owns a significant portion of US sovereign debt? Here's the answer: you, me and our fellow citizens end up being owned by a private corporation. That, my friends, is also known by another name. Any guesses as to that other name? Here's the answer to that one: slavery. By the way, the Fed is not our only massuh, but that should be fairly obvious.
Not real scared of the fed, man. They don't know no fight club.
But privatised freedom will be sooo much better than government run freedom ever could be.
what, better the devil you know than the one you don't? go fight club. right now i have much greater faith in more numbers of my fellow plebes than i do in just about any of my "leaders".
Simply because I would like to see a so called "risk premium" for holding US government bonds for 2,5,10 and 30 years ????? Or doe you really believe that the US consumer / citizen is able to pay back what he borrowed from China / Japan / Germany and so forth in a reasonable time ? US interest rates belong into the range 12-16 % p.a.
Ok. So inflation?
Is that what I am to understand by this article. This information is great absent potential ramifications of said information.
Fed loses total control and interest rates rocket to 20% overnight (at some point)? Hyperinflation?
It would be helpful if some insight was divulged into consequences of this as it pertains to the current situation (debt continually imploding) and is it even enough to offset the blackhole we are in.
Slightly confused and in need of some clarity.
No, deflation.
The underlying intent of these Treasury purchases is to act as a floor for other asset classes and their inflated valuations. It promotes liquidity flow into those asset classes, avoiding the dread deflationary spiral.
You ponder, 'if a Treasury auction fails, won't that drive up interest rates suddenly?' Perhaps, but only within a very brief time frame. What would actually happen is a deterioration of confidence in the valuation (deflation) of those other asset classes which the Treasuries are intended to support. Then, ironically, investors 'run home to mama', 'mama' being Treasuries in this case. The interest rate on Treasuries would not indicate a substantial increase, since demand would support the class, versus other classes. (I'm assuming the competence in place is sufficient to mitigate velocity).
30570...nicely worded explanation. thank you.
People won't necessarily flee to Treasuries. At some point, people may flee Treasuries to other currencies, high quality foreign sovereign or corporate bonds, gold, etc. Of course, Japan's moving toward gov debt of 200% to GDP, so that might not happen for a while in the US.
People don't run home to mama being treasuries. They run to gold, silver, commodities.
i don't know about that 30597. up to this point in the last several decades, the treasury is where the big money runs. as to the future, it is unfolding and commodities, including metals, seem to be capturing more attention than treasuries mainly because the usa ain't the 800 pounder it used to be.
I should add that in my view, the usa can snuff down the price of gold with its reserves....
That's not entirely accurate. The fed is based on monopolization and control of a single resource. After WWW1 the US was flush with gold and the FED didn't like it. So they gave most of our gold away getting rid of it entirely by say 1980. We had alot of silver and still do and when keneddy tried to move us to a silver based currency and get rid of the fed they killed him. The same thing is going to happen now except instead of a single authority trying to get rid of a powerful agency with a stupid public you will have a educated public demanding it from an authority that doesn't want it gone.
The powers that be used to have tons of control over our sympathies and with the advent of the draft and the beginning of secret unfunded wars starting with vietnam you see they are very aware of thier loss of control and power. They used to be able to rabble rouse us into a war under the guise of protecting some interest but the draft was a big deal in that it brought them to the realization that they no longer were capable of doing that.
The big US money runs to treasuries because that's the source of all the big money evil. But so much of our money is outside the US now you can't expect it to act like it has before because of other complicated entanglements. You are dealing with a true world market now and not just a selective tight knit group of people with complete and total sympathy and compassion for each other and no sympathy and compassion for anyone under thier thumb. They've tried everything. Mob rule during the roman age, pure outright brutality rule, sending wizards to try to teach us to be compassionate towards them and forgive them forever.
Now everyone has the unsavory job of limiting the power of those who will not limit themselves because trying to live with caligula is just the suck.
Hey! I got a new conspiracy theory for you:
Dennis Kneale = Tyler Durden
Or is that, Tyler Durden = Dennis Kneale?
Oh well, I'm sure you'll figure it out.
Let me know when you do! Thanks!!
....US was flush with gold and the FED didn't like it. So they gave most of our gold away getting rid of it entirely by say 1980"
are you saying that the US has no gold reserves?
Audit Fort Knox and let us know ... ups; apparently that cant be done ... oh well we will just need to take their word for it ... or should we
Absolutely yes. There may be 20 billion at 1000 an ounce in there but it's gone. The IMF has been letting dictators take over the undeveloped countries loaning them huge loans to build stupid stuff then letting the american or british governments kill the dictators off sticking the newly developed free government with the debt. That's the way the system works. When you allow an improvement or let things get better you include old garbage into it so that things are better but not really. As it stands now the IMF probably controls 60 to 70 percent of the above ground gold.
Yes, some people have, and would in the future. However, such people might soon question the intelligence of such a move once they realize that, when the current liquidity-induced, malinvestment bubble goes 'pop!', shares in such assets are not resistant to the outflow.
Wait until the true story of the COMEX comes to light. There are not enough commodities to deliver, nothing new to the gold dealers but it's a fact. The ICE contract went to paper in March--a 1/4 of a bankers bar paper committment for a kilo contract. They simply don't have the physical assets. Phantom gold and silver contracts. Woohoo. It's as bad as the naked short selling in the market. That said, bear market rallies can have dubious near term implications on said assets. If QE cessation is announced and is bitten off, chewed, and cheered these assets will correct significantly. And what does that leave-a great buying opportunity.
The true story of COMEX isn't that complicated. They simply use the computer speed and national security protection to pass metals back and forth between central banks without actually buying or selling anything. The prices get printed into the exchange system and it messes up how all the other buy sell orders flow. The central banks have decided to only allow 400 tons of fake sales to influence the market per year instead of 500 tons. But the above ground gold is so large in comparison to the in ground gold it's easy to swamp it and affect the rate and simply dictate what you pay miners for the stuff. In a sense they suppress the desire to mine and the willingness to mine to keep activity in that area at a minimum to keep the amounts and numbers more static. The scam never runs out of gold or silver because it's just like 2 guys sitting in a room full of auctioners bying and selling the same houses over and over again influencing what everyone else pays for houses but since it happens on computers in complete anonimity nobody notices that they are doing it. There could be some complicated 3rd party interactions but it could be that they have enough control over the system that just running the fake crap through reports to everyone's computers that the prices have changed and no orders outside of the swap spread go through. In other words you could put in an order for 100 gold at 967 and if they are pounding out the spread end up buying it for 957 cause Goldman Sachs just screwed over your seller.
sounds about right
Absolutely correct. Gold, Silver, safe haven currencies like CHF...
thank you tyler. there are no words. i love you. i've been watching this stuff for months, thinking my head is going to explode.
Of course, they are capitalizing on the sheer ignorance of the peasantry -- and having talked with some in Congress, I know that Ben knows as I do, most don't have a clue as to what is going on. Nor will they until it explodes in a mighty earth-leveling mushroom cloud.........
should we run Ben out of town on a rail? At this point, I'm afraid its too late......flip us, we're done....Ben's attempt to show us that all his theories were "right" and he could have prevented the 1930's depression are going to kill us ......
here, today, in a global economy in 2009.
I agree, we all are that bastards guinea pigs to prove his theory. Ben Bald Bastard (BBB)...
thank you tyler. there are no words. i love you. i've been watching this stuff for months, thinking my head is going to explode.
Of course, they are capitalizing on the sheer ignorance of the peasantry -- and having talked with some in Congress, I know that Ben knows as I do, most don't have a clue as to what is going on. Nor will they until it explodes in a mighty earth-leveling mushroom cloud.........
should we run Ben out of town on a rail? At this point, I'm afraid its too late......flip us, we're done....Ben's attempt to show us that all his theories were "right" and he could have prevented the 1930's depression are going to kill us ......
here, today, in a global economy in 2009.
no more QE from the fed, dollar up,
Higher fiscal deficit, interest rate going higher,
the remaining money hiding in treasury is coming out, where are they going to go? not over seas, dollar is up,
money going to stock??
victor wang
by far the best work out there. i hope the experts are shitting themselves right now trying to figure out how to counter this analysis. unfortunately for them, cartoon reruns of bugs bunny are more entertaining, and more enlightening for that matter. excellent work, tyler. excellent.
It's all a confidence game. Truth is a dangerous thing in these times. It won't totally end the game, but it could change it in a way that might potentially lower the living standard of Americans in some way. Not being blamed as part of the reason for why something like that happened is what motivates the action, and is an example of groupthink, as well as clear evidence of just how scared the majority of supposed experts, pundits and policymakers are at this point.
"If you do that, it will result in [MAKE UP SOME SCARY SCENARIO AND INSERT HERE]"
Whoever is best at using this formula will make more of a difference in these times than anyone else. I equate what we're living through right now with the time after 9/11. In that environment it was the same dynamic...
No wonder stocks are skying.
No different than Zimbabwe in 2007.
JOHANNESBURG, South Africa - While markets across the world swoon, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities in a desperate attempt to protect their money from the country's stratospheric hyperinflation. The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent.
Jim Rogers' price target is getting closer:
http://www.rightsidenews.com/200906135141/editorial/rogers-dow-1-million...
http://www.wealthalchemist.com/Blog/2009/06/jim-rogers-sp-50000/
When I read this article that chart of the Zimbabwe market sprung to mind, thanks for doing the post of the chart for me!
Oh and you are not allowed to use Zim money as toilet paper either...
Dollar loo rolls to be banned next week?
anyone got a JCB with large front loader to spare so I can go to the supermarket in October?
The Y axis is missing about 12 zeros, oops make that 15, oops...
This is exponential growth you can believe in.
“The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output."
For those who are waiting for a Frankenstein ("That's FRAHNK-en-Shteen") moment, complete with pitchforks and Eliot Ness, you will find the above at the end of every FOMC Minutes release.
"Oh...Uhhh...we didn't INTENTIONALLY tank the World Economy...We just wanted to...You know...Have a little...(*Sssst*...Jeff...What's the word?...)...Have a little FUN.
Yeah...A little f__..."
transaction methodology is basically "controlling" prices unless the situation is overpowered with news etc. . I've observed too many time where a stock trades lower while on balance volume
hat tip to good finance articles..
it is utterly stupid to nitpick amonst bloggers when the country is being looted to the tune of trillions.
we either stand in this fight together or fall apart.
I did NOT have sexual relations with that Treasury Bill.
hahahaha..
This will all end in a spectacular conflagration the likes of which we will never forget...until the next cycle of greed and arrogance comes around.
Bubbles, bubbles, everywhere.
First we had the Nasdaq Bubble.
Then the Housing Bubble.
Then the Oil Bubble.
Now the Coffee Bubble.
"Surging stocks fan optimism and risk embracement – not to mention forcing many into the stock market with both nostrils plugged." - Doug Noland 8/6/09
Oh that sucks.
RT - The sugar chart of you please....
RT...got any banking thoughts, like C, BAC, GS....are they doing that old eric clapton thing called "roll it over"?
Ok... market looks like it's gonna crash (deflationary)..printing presses go into hyper drive (inflationary)...massive amounts of debt issued (inflationary)...end of QE (deflationary)....
Fed owns a big chunk of QE debt (either?) depends what they do with it..
sigh.probably sell it at a discount to GS.
Excellent analytical paper TD.
Seems to me the heart of this particular discussion is the genuine concern immediately following the (insert negative adjective here) 5s auction that the 7 could be (insert an even more negative adjective here). We understand that if this were to have happened, it would not have been a welcome transaction in the eyes of the ruling political elite.
The postulation posing as the elephant in the room is that an understanding was in effect between the Fed and the PDs i.e. Fed would purchase the noted CUSIP asap. It would be almost impossible to prove this unless one of the insiders came out with a video or recording. Given that, those of us who are on the outside must come to conclusions based on the information that we have. Given further that there are some who simply don't trust the Fed, Treasury, Obama economic team, it is not unreasonable to conclude that a "deal" was in the works and that those purchasers of the referenced CUSIP have nothing to worry about because it will be taken care of as the risk of a failed 7 is not one that is acceptable.
Remember the duck theory; if it has big orange feet, water rolls off its back, and it makes loud quacking noise, it's not definitive but a good chance that you got a fucking duck.
Just like Marla reported on the Chrysler bankruptcy, I am 100% confident the tapes exist on these "agreements" with the fed. Why? Well, if you agree to do the Fed a favor and you can't get a contract, how do you protect yourself and ensure the fed buys it back?
if those 'experts' worked on the street for 20 years and still don't have enough $$ to retire, what does it tell about their expertise?
Mr TD,
Thank you for this post. I will read it until I can recite it back in whole. When I finish learning from this website, how to use captured registered dealers as a tool to demonitize the pain and disgust of the American people, I will have a cornerstone for my post, wherein, I pick up my poison pen, in my plagiarizing nail gnawed little white hand and, I explain to the people of my neighborhood, why Jerry came home one Tuesday in May and shot his wife, three kids and himself.
if you comb through commentaries of Jansen's blog, there are posters Gary, Greg... who's been showing that John Jansen is not as competent as he seems to be.
The fed will always and continue to monetize-end of story and the main reason is from a statement I recieved from the administration today-I just turned 52.
Dear Citizen
Due to the current financial situation caused by the slowdown in the economy, I, President Obama have decided to implement a scheme to put workers of 50 years of age and above on early retirement.
This scheme will be known as RAPE (retire aged people early)
Persons selected to be RAPED can apply to congress to be considered for the SHAFT scheme (Special Help after Forced Termination)
Persons who have been RAPED and SHAFTED will be reviewed under the SCREW program (scheme covering retired -early workers)
A person may be RAPED once, SHAFTED twice and SCREWED as many times as I President Obama and GS deem appropriate.
Persons who have been RAPED could get AIDS ( additional income for dependents & spouse) or HERPES ( Half earnings for retired personnel early severance)
Obviously persons who have AIDS or HERPES will not be SHAFTED or SCREWED any further by the President and his associates.
Persons who are not RAPED and are staying on will receive as much SHIT(Special high intensity training) as possible.
I President Obama have always prided myself on the amount of SHIT we give our citizens.
Should you feel that you do not receive enough SHIT, please bring this to the attention of your Congressman who has been trained to give you all the SHIT you can handle.
PS-- Due to budget cuts and the rising cost of electricity, gas and oil as well as current market conditions, the Light at the END of the Tunnel has been turned off.
Thank You for Your Time
SHIT will be coordinated with mandatory democratic town hall meetings, thank you --- carry on.
Chris Martenson Responds
http://acrossthecurve.com/?p=7704
The Fed stated that they were buying 300B in USTs. OK...So it's the fresh paper. Does it really matter? It's still QE or monetization. Are they masking declining demand. Seems so.
http://financialsense.com/Market/wrapup.htm
The MBS monetizing seems far worse.
The MBS monetization is bad, but in a different way. With the MBS, they are covering up the fact that foreign buyers have lost faith in fannie and freddie entirely, and without Fed sponsorship of that market, mortgage rates would be much higher today.
It's worse actually. The Fed is monetizing long term mortgage debt. This alone is frightening. I find it impossible to visualize how they can unwind this.
If there is any distinction between QE and monetizing, the distinction exists only in the minds of monetarists. Printing money to buy a host country's sovereign debt can be nothing other than monetization. Monetarists may try to obfuscate the fact by using big words they learned (or made up) in college. "Expanding the money supply" is monetizing.
I would write an article thoroughly debunking this claim that the Fed is simply monetizing debt, but I'm not that good a liar.
ROFL.
I wouldn't call that purgery. Everyone knew the Fed was going to buy (monetize) $300B because they announced it March. No congressman asked Bernanke who he was buying from.
Reselling treasuries so quickly at a loss is the more interesting question.
they might be selling them back at a loss in a open market, but i, somehow suspect that, the difference between the purchasing price and the selling price is being settled between the FED and the dealer in some, uhmmmm " un-orthodox market mechanism"
Yes, that suspicion is what makes it an interesting question.
Do we know that the PDs held the bonds until the Fed purchase?
that is a great question. we can not be sure, but if the FED had an agreement with them about re-purchasing the Treasury bonds after a time period of x days and covering their loss occurred during that time period + a small premium of X.xx % the answer becomes self-evident
Hum...what happened to the 2,5,10 yr futures during that period ? Any chance to screw some international operating banks or hedge funds ??
These sorts of financial genius are always a Rob Peter to Pay Paul situation to buy time. It will juggle and juggle and juggle and then all balls will fall out of the air.
Mission Impossible...You found the *tell*...Brilliant..
I will not be the Fed Chairman that presides over the Great Depression II.
Coming hell or high water, I will not allow a failed auction happen under my watch. No F*** Way. Remember, I am the Fed Chairman and my way prevails.
As an interesting side issue, and totally OT, IMO this is comparable to why Lincoln invaded the Confederate States of America (not wanting to be the president whose election caused the breakup of the USA). Me me me.
x
TD, using the info in the last chart you should compare the preceeding auction of the 1-10 day bond purchases with the preceeding auction of the 11-30 day bond purchases to see if there is a correlation between weaker auctions and the purchase of the next issuance of bonds in a shorter period of time.
So where do all the towering $TRILLIONS of Interest Rate Swaps figure into the story?
Man, that is indeed a question that I have been thinking about for a while too. It could be the gun powder keg which is the source of the next financial crisis explosion.
I have for the life of me been attempting to figure out who the hell wants treasuries. I can't. Their movements makes no sense when compared to the stock market. So, you know something funny was going on.
My view is that they are attempting to hide the fact that in th=ruth they are having auction failure so the bidding process is rigged beforehand. Failed auctions get lost of big press. I knw about german failed auctions and they raise rates. It is also a confidence disaster, and considering that the fed comes out and alwyas says their is huge demand it makes what they are saying to not look very true. Considering how wrong Bernake has been all along about this crisis, and how what he has said hasn't been reflected in reality in my view they Td has earned the right to shoot and ask questions later.
There is an old saying fool me once shame on you. fool me twice shame on me. Well just how many times do geitner, summers, bernake, paulson, etc have to play this game before we shoot first and ask questions later. It is this kind of stupid uncritical thinking that got us intoa war in Iraq with false data and white house misinformation. Ejooug is enough. Anyone with even a bit f wits about himself at this time should be assuming poor/bad intent by our public officials. Why, because they have proven the do not deserve the benefit of our doubts anymore!!
These are the kind of thigs the fed is doing to lower rates, yes. But it is all getting pumped into a stock bubble and not going to a better economy. that means 1/2 of the money being spent ends up in bankers pockets in the form of a bonus. that is a huge encomic waste. I also have to pay this back via taxes at a higher rate than the banks pay to borrow and inflate the assets. it kills the dollr. and we all get punished except wall street bankers. that's the essence of what the hell is going on, nad it's time for america to wake up and realize the fed is directly putting out tax money into bankers pockets in the form of a bonus and profits that are a rigged in advance!!!!
I would like to soften your comments :
stock market bubbles are adding to wealth creation. After the Madoff desaster, subprime mortgage desaster, Wall Street desaster people need one straw of hope - doesn^t it make you feel good to see your portfolio's NAV grow ?
Just to be clear.... I am purchasing Treasuries. The point of anything market related is to figure out what premise is wrong and then jump on the trend, you just gotta get off before it goes off the tracks.