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Weak $29 Billion 7 Year Auction Prices At 2.25%, Bid To Cover Drops

Tyler Durden's picture




 

The series of increasingly weak Treasury auctions continues with today's 7 Year $29 billion offering, which just priced at a 2.25% high yield. The yield was a materially higher 28 bps compared to October's 1.97%, and shows that the peak of the curve belly, the point that recently was most desired, is now being shunned the most. The Bid To Cover slumped to an 8 month low 2.63, the lowest since March's 2.61. And most notable, indirect bidders have come at an 8 month low as well, taking down just 42.2%, forcing Primary Dealers who have traditionally have a backseat role in stabilizing the 7 Year to step up and buy almost a majority of the auction (and 57.8% when including Direct Bidders). Now that as (so far only) Zero Hedge disclosed the Fed is the biggest holder of US Treasurys, we expect to see ever decreasing interest by foreign bidders in auctions going forward, especially in the belly, where the Fed will soon be the main holder of securities.

 

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Wed, 11/24/2010 - 14:23 | 752941 hedgeless_horseman
hedgeless_horseman's picture

Bernanke and Timmy must continue to friend each other, or else the game ends sooner, rather than later.

Wed, 11/24/2010 - 16:04 | 753242 Dadoomsayer
Dadoomsayer's picture

Gross and Bernanke are obviously friends on Facebook.  Gross sells longer date treasuries and buys MBS right before Bernanke announces that the fed "may" buy MBS.

Good game guys, good game...

Wed, 11/24/2010 - 14:25 | 752948 HarryWanger
HarryWanger's picture

At this point does it even matter who owns the majority of Treasurys? If I had to choose, I guess I'd rather have the Fed own them then China, if you really think about it.

Wed, 11/24/2010 - 14:34 | 752978 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ok, you would be agreeing to purchase your own debt.  It does not work that way.

Wed, 11/24/2010 - 14:40 | 752998 Id fight Gandhi
Id fight Gandhi's picture

Buying your own debt and paying fees (primary dealers) to do it as well.

Wed, 11/24/2010 - 14:52 | 753040 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

And telling us we must pay him back with interest for the monie he leant himself, even though we did not have any economic benefit from this scheme.  Sounds to me like this HarryWanger is trying to mess with our monie!

Thu, 11/25/2010 - 06:15 | 754358 jeff montanye
jeff montanye's picture

it's not clear to me that harry's buying the debt from himself as the fed is kind of a strange public/private amalgam not truly a central bank as most other countries have.  whatever, the alarm bell rung in the post above seems as if it may be worth hearing; yields on the five year are up 50% in about fourteen trading days, seemingly counter to what the fed intends.  are they lying (again) or impotent (again)?

Wed, 11/24/2010 - 14:43 | 753012 HarryWanger
HarryWanger's picture

What I'm saying is, the debt is never going to get repaid regardless. Better to not piss off the Chinese by not paying them off than the Fed.

Wed, 11/24/2010 - 14:48 | 753027 SheepDog-One
SheepDog-One's picture

God youre pathetic. Not an ounce of self respect or courage in your entire being.

Wed, 11/24/2010 - 15:56 | 753218 1100-TACTICAL-12
1100-TACTICAL-12's picture

Well said SD-1, Sir...Ooh Rah...

Wed, 11/24/2010 - 14:49 | 753034 gjp
gjp's picture

The Chinese need to be paid somehow for their enormous net exports into the US.  Paying in never-to-be-repaid treasuries has served the US very well.  What alternative means of payment would you choose?  Sell off American companies?  Real estate?  Military technology?

Thu, 11/25/2010 - 06:19 | 754360 jeff montanye
jeff montanye's picture

i would imagine that that (and much more) is in the offing, via a combination of public and private means.  the generations to come are being plundered.

Wed, 11/24/2010 - 14:53 | 753042 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

'So go and buy an ipad while you still can.' 

Ok I read you clearly now.

Wed, 11/24/2010 - 14:57 | 753044 Fraud-Esq
Fraud-Esq's picture

Why not. 

China does the same thing. 

The Fed is filled with fraud and the 12 trillion bailout is a sham.

But - I'd rather not pay private interest to a private cartel on public debts. 

Wed, 11/24/2010 - 14:35 | 752982 Max Hunter
Max Hunter's picture

The implications of the FED owning treasuries is that we are making the house payment with a visa card.. Quite ominous to some..

Wed, 11/24/2010 - 15:10 | 753103 DarkMath
DarkMath's picture

I wouldn't say a visa card, it's like we make our payments with a printing press in our basement. In fact it's like everyone is making their debt payments with a printing press in their basement. The end result is massive inflation. Not neccessarily in the increase in M2/M3 but in the resulting insult to the Dollar. Printing money will force dollar holders abroad to dump dollars. That's the real danger. There are more than enough dollars in circulation abroad to cause hyper-inflation here. It's just the whiff of money printing that could cause the dollar to collapse, not the amount of dollars the Fed prints. The Fed's balance sheet is irrelevant at that point. If the world looses confidence in the dollar (and they are) then the gig is up (and it is).

Hyper-inflation is a phsycological condition akin to panic attacks. It's not a monetary condition. There is no formula where you print X amount of dollars you get Y amount of inflation. Economics is not a hard science. Think a combination of sociology and hypnosis.

 

Wed, 11/24/2010 - 16:09 | 753256 Max Hunter
Max Hunter's picture

Agreed... The point I was trying to make is that you are using money you do not have..  Maybe not the best analogy... But quite ominous nonetheless.

Thu, 11/25/2010 - 06:25 | 754362 jeff montanye
jeff montanye's picture

imo treasuries on the balance sheet of the fed are not as ominous as all the very dubious mortgage backed securities also there.  imo that is where fiscal policy (gifts of money) departs from monetary policy (relationship between treasury debt and federal reserve notes) and the fed advances from very poor policy to actual law breaking.

Wed, 11/24/2010 - 14:37 | 752993 SheepDog-One
SheepDog-One's picture

OK Harry, then you better get busy on your 4th part time job to pay it all back. Who the hell do you think theyre talking about when they say 'The FED owns all the treasuries'...and who will be paying that interest? Really, do you know ANYTHING about whats actually going on?

Wed, 11/24/2010 - 14:41 | 753002 Id fight Gandhi
Id fight Gandhi's picture

I'm thinking it's someone purposely saying nonsense.

Nobody can be that ignorant.

Wed, 11/24/2010 - 14:51 | 753037 HarryWanger
HarryWanger's picture

Ignorant?? I know the end result as most here do. My timeframe differs probably. I'm thinking we can keep up the charade for 2 or 3 more decades. In that case, it's best if the Chinese don't keep buying our debt. It's not going to get paid back regardless.

My timeframe dictates wealth generation while possible, so trade with the market and boost your net wealth while you can. 40 or 60 year timeline for when the shit hits the fan is far enough down the road to generate a great amount of wealth.

Wed, 11/24/2010 - 14:58 | 753060 Max Hunter
Max Hunter's picture

WOW... I'm thinking we could have a run on the USD at any moment.. If it survives 2011 I would truly be amazed..

Wed, 11/24/2010 - 15:06 | 753085 Arkadaba
Arkadaba's picture

I absolutely agree!!!

40 - 60 years!!! LMAO

Wed, 11/24/2010 - 15:51 | 753210 Al Gorerhythm
Al Gorerhythm's picture

The uS is gut-shot, sprawled, wounded in the desert and is expected to survive 60 years. I've read that a belly wound is a long painful death, but 60 years? Pythonesquely Hopeful. Monty, that is.

Wed, 11/24/2010 - 16:53 | 753398 Max Hunter
Max Hunter's picture

Just came out.. from NIA... Can't say I see it exactly like this but, something like this, but I think it will be sooner..

http://www.youtube.com/watch?v=2N8gJSMoOJc

 

Wed, 11/24/2010 - 17:08 | 753447 SheepDog-One
SheepDog-One's picture

40-60 years, OMFG Harry youll be incredibly lucky to see 40-60 WEEKS before the shit hits the fan.

Wed, 11/24/2010 - 15:16 | 753113 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Economics plus geology equals.....

supply/demand +

Peak Oil:

http://www.youtube.com/watch?v=jaTIo1QTJis

Wed, 11/24/2010 - 15:17 | 753122 Arkadaba
Arkadaba's picture

I was thinking of that as well.

Wed, 11/24/2010 - 15:24 | 753138 DavidC
DavidC's picture

Harry,
When the Chinese and Russians are talking of trading between themselves in currencies other than the dollar, one can't help thinking that your charade time frame of 2 or 3 decades is somewhat generous.

DavidC

Wed, 11/24/2010 - 16:00 | 753229 1100-TACTICAL-12
1100-TACTICAL-12's picture

The writing is plainly on the wall, year's maybe decades not....

Thu, 11/25/2010 - 06:33 | 754367 jeff montanye
jeff montanye's picture

the ben bernanke is not acting as if he thinks he has decades or even years.

Wed, 11/24/2010 - 14:26 | 752951 Cleanclog
Cleanclog's picture

Foreigners less interested, btc down, debt losing lustre.  Better refi while ya can.  Gonna get sloppy before long.

Wed, 11/24/2010 - 14:29 | 752953 Cdad
Cdad's picture

Sweet. 

Simultaneous to this news, SPY creation units sold short in the AH session last night at $120.13 have now all been covered...as the counter trend HFT currency bid up in the Euro, with riots in the streets of the UK, has now ended.

Nice.  I wonder if the SEC is still "taking comments" from the criminal syndicate known as Wall Street on how best to not enforce any laws...while, counter intuitively, FBI agents raid hedge funds and arrest folk, and the FDIC announces three hundred legal put backs!

And CNBC rocks on with wall to wall coverage of Black Friday shopping guesses.

Fraud Bitchez!

Propaganda Bitchez!

Additional:  Oh, and more than 250 years worth of earnings are now reflected in the shares of CRM per today's sweet price manipulation...too.

 

Wed, 11/24/2010 - 14:34 | 752975 goldmiddelfinger
goldmiddelfinger's picture

CNBC Channell Checks !! Ooops, that was a slip.

Guess Dana Telsey's next? Her whole business model is based on inside info:

TAG is dedicated to delivering to you unbiased, in-depth company and sector analysis, trend analysis, and forecasting. We utilize a 360 degree comprehensive approach to research ranging from the mall to the boardroom. We provide you with a holistic view of the consumer sector through our in-depth knowledge, industry relationships, and analytical insights

 

http://www.telseygroup.com/home/about/methodology

 

"industry relationships". Hmmmmm

Wed, 11/24/2010 - 14:31 | 752967 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold and platinum are dripping on the news, salivating at the fact that once again money will be moving away from treasurie bonds.  Soon the two will break to new highs.  Silver is breaking out upon the results after consolidating tightly at $27.50.  The co opted government, this fascist entity, is facing the end game.  They can not print too much longer, even the BS Bowles Simpson (BS) Commission knows this.  While the rest of the world warms to austerity, America will face the cold with the close of a door.  Welcome to the cold world, America.

Wed, 11/24/2010 - 14:43 | 753009 crosey
crosey's picture

Austerity in America will happen, and it will be a good thing.  Even TPTB will be subject to it.  Not many rocks left to hide under.

Bring it on!  I'm ready.  Let the cleansing begin.

Wed, 11/24/2010 - 14:56 | 753051 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

There will be aaustery for the sheeple, the sheeple who have already been fleeced, now cold and hungry, they will starve then, and by that time, the dollar as an international standard will be utterly shunned by the world.  Yuan for rubles anyone?

Wed, 11/24/2010 - 14:49 | 753031 spongeBOB
spongeBOB's picture

EUR/USD is dumping, bonds are sliding but stocks and oil are rallying? I confused !!!!

Wed, 11/24/2010 - 14:58 | 753057 Cdad
Cdad's picture

It is the unintended consequences of our insane Fed chairman.  Misapplication of capital.  Forced capital allocation via the Fed.

He has said it openly now.  He intends for you to pay up for CRM so that bankers can make it going both ways, sideways, and no ways...while your savings languish.

It is moral hazard, rewarding profligate spenders, punishing savers.

It is an intervention, a fraudulent banker protection racket.

Wed, 11/24/2010 - 15:18 | 753125 spongeBOB
spongeBOB's picture

So what you're saying is money is flowing into stocks and commodities and out if bonds after a weak auction? If so shouldn't the USD be dumping also. Just trying to understand the ponzi MO.

Wed, 11/24/2010 - 15:48 | 753206 Cdad
Cdad's picture

If I get your question, the ponzi is simply an algo.  You don't have the secret algo password.  You are a serf, probably trying to analyze something fundamental.  LOL!

Listen, JP Morgan simply needs you to pile in here, OK?  Just pile in the dumbest thing you can find.  Because everything is great now.  You should just buy...oh, I don't know...SPY.  Yeah, there you go.

It'll be easier if you ask less questions next time.

Wed, 11/24/2010 - 15:34 | 753102 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Decreasing supply of oil and stable demand (if not increasing world demand) is raising the price of oil.  Same with gold, but there is a flight to gold because all currencies are done, with the Euro spotlighted by Ireland.  Silver is seeing a tie on the dollar as the currencies stick together whether people name call or not.  The dollar is on life support, and electro shock therapy.  The babe has been since tricky dick took her off of the gold standard.  She was given hope to walk by a Kennedy silver standard, but her financiers couldn't have her creating her own world.  They wanted her in the cave unless she was performing.  Her life's performance is in its final act.  Curtains with peak oil.

Wed, 11/24/2010 - 14:36 | 752988 ibjamming
ibjamming's picture

It's genius actually..."The Fed" (a mysterious entity with "lots of money") "buys" our debt.  We buy our own debt, and we never care if we pay ourselves back...as long as we can collect an interest payment every year.  As long as everyone believes that "The Fed" has money, it can go on forever.  "Buy more"...monetize more...erase/put off your debt.

 

Besides, all this does is "erase" all that collateralized mortgage debt, taking it off the banks hands.  The "Fed" (government) will soon "own" a lot of mortgages...and a lot of real estate that has defaulted with no clear mortgage holder in sight.  Yup...CMOs and their ilk sure screwed things up.  Greedy bastards...

 

The question is WILL everyone accept that "our rich uncle Fed" is keeping us afloat or realize it's all an accounting game.

Wed, 11/24/2010 - 14:42 | 753007 SheepDog-One
SheepDog-One's picture

Oh you'll be paying, dont even worry about that! Sure right now it all seems to be some abstract concept 'we own all our own debt so what'...take a look at Ireland and the rest of Europes austerity measures....also known as 'indentured servitude'...WHO exactly do people think will be paying back our own debt? YOU will! Along with your confiscated retirement...your kids will be nothing but slaves kepping only a very small amount of what they ever earn, if anything.

Wed, 11/24/2010 - 14:44 | 753014 Cdad
Cdad's picture

And folk just don't get it, Dog.  They just do not understand what is happening RIGHT NOW!

Is it the fluoride?

Wed, 11/24/2010 - 17:12 | 753461 SheepDog-One
SheepDog-One's picture

Ah yes, the flouride as in Dr Strangelove- 'You never see a Russian drink the water...they only drink vodka! Its the flouride'!

Wed, 11/24/2010 - 15:30 | 753158 Arkadaba
Arkadaba's picture

I'm really hoping that the Irish people will not stand for this transfer of wealth - bailing out the banks (Irish and Euro central banks to whom the Irish banks owe money) and making middle and working class pay for it. The budget includes new property taxes, taxes on water and an increase in VAT, which is already very high and which the working and middle classes will notice much more than the wealthy.

The Irish are well-educated, politically aware and understand rebellion. If they don't rise up and repudiate this deal with the devil, I'm not sure who will.

I would like to see how much of the IMF/EU/UK bailout money is going to the banks and how much is going to the government - anyone have a breakdown?

Wed, 11/24/2010 - 15:56 | 753216 Cdad
Cdad's picture

I used to admire the Irish...until two days ago.  I thought they were a prideful bunch, self sufficient, tough.

And over they rolled...now another set of indentured servants to the UK and Germany.  Sad story, really.

But of course, they could turn it all around tomorrow.  Maybe they have turned it around, too...but I just don't know because of the wall to wall coverage here on Black Friday Shopping.

Revolution!  Defund the malls and give silver coins for Christmas this year.

Wed, 11/24/2010 - 16:33 | 753347 Arkadaba
Arkadaba's picture

The government rolled over - the people haven't yet. I am going to be watching this. 

At the very least, there will be a new election in the next few months. What might happen is a non-confidence vote (triggers an election right away) if enough people complain. 

Wed, 11/24/2010 - 19:02 | 753719 Cdad
Cdad's picture

That's great, but for now, more shit in the streets should be on fire...if what I always thought about the Irish is anywhere near true anymore.

Wed, 11/24/2010 - 14:49 | 753030 Double.Eagle.Gold
Double.Eagle.Gold's picture

sb interesting when we return to 'market' interest rates, interest payments alone will exceed 100% of taxbase income. guess we just print more paper to pay the interest.

Wed, 11/24/2010 - 14:44 | 753013 thepigman
thepigman's picture

Bubbles Bernanke is an

epic failure.  Hear that Brian Sack?

You fed guys are too incompetent to

bring down long yields. QE2 is

working ass backwards of advertised.

Wed, 11/24/2010 - 14:57 | 753053 AccreditedEYE
AccreditedEYE's picture

+1 TBT up 3% today. The only thing that slows the higher-long-yield train down is an epic equity crash. They can't have it both ways.

Wed, 11/24/2010 - 14:59 | 753065 Cdad
Cdad's picture

The euro dollar is signalling your "epic equity crash."

It is not if...but when.

Wed, 11/24/2010 - 15:09 | 753101 thepigman
thepigman's picture

All of the other fed governors have

gotta be laughing and calling Bernanke

names. Bubbles, the red-nosed Chairman?

Wed, 11/24/2010 - 14:47 | 753025 Fraud-Esq
Fraud-Esq's picture

Why is BARNEY FRANK trying to get Jonathan Pollard released from jail?

 

Wed, 11/24/2010 - 15:02 | 753070 primefool
primefool's picture

bernanke is appearing before congress next week to sell QE2. Congress has many hostile members who dont like QE2 because they believe he is "destroying the Dollar". Therefore , the dollar has been allowed to strengthen this week. Of course the congress critters always are happy when stocks are up - so stocks went up this week. yes bond yields have gone up some - but hey 10 yr below 3% is hardly cause for handwringing. So Bernanke now has his ducks lined up - he has to be beyond reproach - he is the shaman - the chosen one.

Wed, 11/24/2010 - 15:15 | 753116 thepigman
thepigman's picture

The chosen one will be asked why the

10 year's gone from 2.5% to 2.9% and

the 30 year from 3.5% to 4.3% under

his QE2 intervention. Ben belongs

on the short bus.

Wed, 11/24/2010 - 15:44 | 753191 Blah Blah Blah
Blah Blah Blah's picture

Yes....I just don't get it.  QE2 and middle/long bond yields going up?!?  I don't understand it.  Help a dork out.

Wed, 11/24/2010 - 16:03 | 753240 Printfaster
Printfaster's picture

Read my alias.

Wed, 11/24/2010 - 16:08 | 753255 Blah Blah Blah
Blah Blah Blah's picture

Print more money, increasing the money supply without a corresponding increase in productivity, inflation looms, bond market not like inflation, yields rise to slow down the inevitable?

Wed, 11/24/2010 - 17:16 | 753476 SheepDog-One
SheepDog-One's picture

It doesnt make any 'sense'. Have to have a Princeton economics degree to see how printing trillions and selling it to yourself with no means to ever pay even the interest on it works!

Wed, 11/24/2010 - 16:11 | 753263 Newsboy
Newsboy's picture

What if the era of debt based money is coming to an end? This is necessary, due to contraction of necessary economic substrate supply, such as oil, when exponential growth is required. That which is unsustainable will end.

Ellen Brown recommends "spending money into circulation" on public works, which cogenerates money and value.

What if we are in a transition to that? "We" are spending money into circulation, but not creating value, except that the first handlers of that money extract value from the rest of the economy (Fed + Primary Dealers).

Instead of an inelastic collision, with lots of deceleration damage, we may be in an economic "crush-zone", like they design into cars.

The first handlers of the money still pull the strings, but the insider trading attack is a threat. there are other threats. They are unloved masters, living under the sword of Damacles.

What we need to see near-term is a transition of the printed money from greasing the bankers, to going directly into public works, garbage collection, teachers, sewers, water towers, consumer rail, etc. This would complete the transition, but foreign trade/debts would require a trade balance, with hard money transfers (gold) to correct for any imbalance.

A massive debt default, planet-wide, would occur, and nothing but goods or gold would be accepted in trade after that, except by very limited arrangement.

Or, I could be way overly optimistic, and this is just what happens before total systemic collapse and cyber-monetary WW-3.

Wed, 11/24/2010 - 18:07 | 753494 Fraud-Esq
Fraud-Esq's picture

Yes. US treasury notes introduced, LET the US federal reserve notes contract. 

Too bad few people on ZH see this opportunity to challenge the cartel with something other than "ban" (which won't happen). 

For years I read stuff posted about Jackson, Jefferson, Lincoln and Kennedy silver and HERE, IT IS, a better opportunity. 

And they don't see it IMHO.

If Kennedy or Lincoln harbored the desires as some claim, no way they'd miss this opportunity to END the cartel by a slow introduction of labor notes or US Treasury notes. It's our damned money, all this stimulus. The entire cartel is INSOLVENT. Therefore, its ALL US Treasury risk to boost our parasites. Our biggest enemy blew his foot off. We have him crutches and lifted the gun in his hand right back to our head. Why? Because the cartel has infected the government to deeply. Now, in an emergency, we pay a vig and print Greenbacks...close to it, buying your own debt is the last step before a Greenback. It's a private cartel Greenback. That's why the ABA is going nuts. The vig isn't enough for the risk of introducing interest free debt concepts to the public. (dangerous experiment from their perspective, might give people ideas). But - it tells you how insolvent the cartel is when they do SOMETHING (buy treasuries minimizing public interest) that they would NEVER do except in a dire circumstance. It's like the Pope and condoms. Do it only if you will DIE. Same with the Fed and Treasury buys.  

It's embarrassing we pay the vig to PD's at all. China doesn't pay a vig or any interest to a cartel. They use Lincoln Greenbacks. The result? Well, the US government and the Federal Reserve say China should appreciate their currency, it's been so successful. 

Ironic, huh?

We have allowed a private cartel to take every advantage of the biggest feat of empire in world history, currency hegemony. If you listen to their pimps closely, like James Gailbraith, even under their arguments, a Greenback would work the same. All "debts don't matter" neocon pimps like Dick Cheney have no argument for why a private cartel must administer the currency. Cheney was half way there. No one in MSM calls them out of this gaping silence. Both neocon and liberal bankers share the same argument. But, neither can explain why, if their position is true, America can't have an interest-free Greenback which is lent to everyone else public and private, at interest, except our government. 

Bondholders just needed MORE DEBTORS and they weren't willing to take the risk of losing the US government as a customer for interest and money creation. Big mistake. It's the deficits since the 1980's that blew money creation up beyond greed beliefs. Leverage was stacked to the heavens because that money was CREATED by US DEBT. The private cartel wanted it ALL. The difference between rich and poor? Easy. All a logical outcome of deficits, debt, money creation, and private cartel monopoly.  

The United States fought for their currency hegemony, not private cartel bankers. Why do they get the benefit and the public is deprived? Even Dick Cheney wasn't patriot enough to see this. He saw half of it, that debt didn't matter when you can (and will) blow up your rivals. What he didn't contemplate were 1) we might not be able to blow up our rivals, undermining the assumption completely and 2) if we did blow them up, why let private cartels vacuum the benefits from the American public. False patriot. True banker.

Dick knew gov DEBT got Reagan reelected, period. He pushed Bush in the same direction, obviously. Dick made ALL his money as CEO of government debt. He knew the game personally and was willing to pay his tribute to the cartel. When he said debt didn't matter, that was the hallmark moment of the Republican party. It was a true glimpse that BOTH political parties play the money creation-to-power game.

Therefore, they BOTH know (under their assumptions) that the US really has no actual debt. Yet, they force the people to nonetheless pay enormous interest to the private cartel. They KNOW a greenback would enrich the American people overall, under their own assumptions of debt money, but they STILL CHOSE not to do it. The CHOSE for the rich/poor gap to widen (based purely on US debt) to record levels. These are the choices of BOTH political parties, not a difference among them on the core issue. 

To me, this is the most interesting of all...  

Wed, 11/24/2010 - 16:49 | 753387 johngaltfla
johngaltfla's picture

If the indirects are rolling into the short end, then they are just waiting for QE 2,3,4,5,6 to sell their crap back to the Fed....No happy ending for the U.S. now!

Fri, 11/26/2010 - 11:28 | 755778 hvl626
hvl626's picture

Let us make sure we agree on how the Fed and Congress create printing-press fiat money via deficit spending. Congress grants a T-security to the Fed (asset) and the Fed credits the Treasury’s account (Federal Reserve Notes) as a liability. The checks written by the Treasury on that credit will then be honored by the check clearing procedure of the Fed. (Congress recently gave $700 billion in T-securities as TARP funds. Congress spent the money. The Fed swapped the T-securities for toxic MBS.)

Congress gets to spend the fiat money so created and the Fed holds the security and receives interest. When the security matures, the Treasury must redeem the security. The value of fiat money initially created must then be paid to the Fed and becomes gain. The “loan” has been repaid. The Fed has the entire value of the security as profit.

The Fed has an acceleration option used for virtually all securities--it will sell the security. Arrangements are made whereby the Treasury acts as auctioneer. Primary Dealers are required to submit bids and usually about 90 percent of each new issue is sold. The operation is touted as the public buying securities from the Treasury. Upon maturity the Treasury redeems the security from the holder. The Fed, as owner, receives the (bid) value of the security upon the sale.

[The Fed’s receiving the bid value is disputed by Treasury statements. Ref.

http://www.forexpros.com/news/general-news/analysis-angry-us-bankers-seek-curbs-on-direct-bidders-118760. Treasury financial statements also claim “borrowing from the public” finances government operations. Direct borrowing from the public (or selling to the public) cannot, in any way, expand the monetary system or result in the creation of fiat money; i.e. inflation. The pretense is deliberatively misleading.]

By either of the two methods, the Fed has received the value of the security. The total value of all issued T-securities becomes a gain for the Fed. Good luck on trying to follow this sequence in the accounting records. Even Enron, World Com, and Bernie were able to cook the books---and they were audited.

QUESTION: Is the statement that the securities have been purchased by the POMO factually correct ? Should we not conclude the increase of T-securities on the Fed’s account is evidence that the securities have not been sold at auction ?

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