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The Fed Is Now Taking Over The Entire Treasury Market 20 bps Per Week

Tyler Durden's picture


Yesterday the Fed released its latest balance sheet data: at $3,478,672,000,000, the Fed's assets reached a new all time high of course, up $8 billion from the prior week and up $615 billion from last year - after all with 4 years almost in a row of debt monetization or maturity transformation, either the total holdings or the 10 Year equivalency of Bernanke's hedge fund rise to new record highs week after week.

But that's not the bad news: the bad news, at least for Bernanke, and why the Fed has no choice but to taper is monetizations (however briefly as following the next market crash Bernanke or his replacement Larry "Mr. Burns" Summers will be right back in) is that since the Treasury is about to print less paper (recall: lower budget deficit, if only briefly), and the Fed is monetizing the same relative amount of paper, the Treasurys in the private circulation book get less and less, as more high quality collateral is withdrawn by the Fed.

This is precisely what the Treasury Borrowing Advisory Committee warned against in May. This is also precisely why the Fed's "data-dependent" taper announcement is pure and total hogwash: the Fed knows it can't delay the delay (pardon the pun) of Treasury monetization as doing so only risks even further bond market volatility as less Treasury collateral remains in marketable circulation, and as liquidity evaporates with every incremental dollar purchased by the Fed instead of by the private sector.

So just how bad is the situation? Quite bad. As as of last night, courtesy of SMRA, we know that the amount of ten-year equivalents held by the Fed increased to $1.608 trillion from $1.606 trillion in the prior week, which reduces the amount available to the private sector to $3.603 trillion from $3.636 trillion in the prior week. There were $5.211 trillion ten-year equivalents outstanding, down from $5.242 trillion in the prior week.

After the Treasury issuance, maturing securities, rising interest rates, and Fed operations during the week, the Fed owned about 30.86% of the total outstanding ten year equivalents. This is above the 30.63% from the prior week, and the percentage of ten-year equivalents available to the private sector decreased to 69.14% from 69.37% in the prior week.

In other words, in 1 week the Fed's "take over" of the bond market continued at a brisk pace of 23 bps, which is its average weekly uptake. This is roughly equivalent to 10% of total private collateral moving from private to Fed hands every year!

So basically every year that the Fed does not taper its purchases, Treasury issuance being equal (and it is declining), the Fed removes 10% of high quality collateral from the world's biggest bond market.

And that, in a nutshell, is what Tapering is all about: the realization, and then the fear, of what happens if and when the Fed continues its monetizations of public debt to the point where there is so little left, that when a trade takes place the entire curve moves by 1%, 2%, 5%, 10% or more....

Everything else is smoke and mirrors.


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Fri, 06/28/2013 - 13:02 | 3703698 So Close
So Close's picture

Suppresed vol accrues interest.

Fri, 06/28/2013 - 13:08 | 3703713 The_Dude
The_Dude's picture

Please explain....

Fri, 06/28/2013 - 14:31 | 3704014 Stackers
Stackers's picture

I see a $1+ trillion shovel ready stimulus in our future.

Fri, 06/28/2013 - 19:35 | 3705030 MisterMousePotato
MisterMousePotato's picture

Please ... someone ... please answer one simple question:

If the Federal Reserve stops buying Treasuries, then who (else) will?

Actually, two simple questions:

When the U. S. Treasury can no longer sell Treasuries, how is it going to cover the checks going out next month?

Deep thinkers might ponder the social and political implications of the U. S. Federal Government instantly not paying one-third of its bills next month.

Deeper thinkers might ponder the consequences for the ensuing months and come to the conclusion that, in a year, the U. S. Federal Government will be in a positiion to pay - what? - ten percent of its bills. (And the social and political ramifications of that.)

Doesn't that put to rest any question about tapers being in our future?

Fri, 06/28/2013 - 23:53 | 3705538 Non Passaran
Non Passaran's picture

> how is it going to cover the checks going out next month?

"Invite" citizens to buy UST's with their pension and other savings while de-stimulating (or taxing) other forms of saving or investing?
They can lend money to foreign "investors" so that they can use it to buy UST's.
They probably have few other ways that you and I can't think of. Don't think you're smarter than them.

Sat, 06/29/2013 - 01:23 | 3705609 MisterMousePotato
MisterMousePotato's picture

"They can lend money to foreign "investors" so that they can use it to buy UST's."

But isn't that exactly what they're doing right now through the primary dealers?

You know ... I really wasn't being coy when I asked my questions. From reading here at ZeroHedge, for instance, my understanding is that the Federal Government has only a few tens of billions of dollars in their checking account (and even at one point only had about five?), and that if they had a single failed auction, well, yeah, sure, they could drain the Federal Pensions, which would buy them - what? - a few months? Six? A year even? But 85 billion dollars a month adds up pretty fuckin' fast, doesn't it?

Fri, 06/28/2013 - 13:10 | 3703721 Chuck Norris
Chuck Norris's picture

LOLOLOLOLOL!!  I get it!!

"the Fed removes 10% of high quality collateral"

High quality collateral being U.S. government paper.

Way too funny Tylers.





Fri, 06/28/2013 - 13:26 | 3703781 knukles
knukles's picture

And of course as the Fed continues to suck up all the paper (stock and flow) rates rise (psychology) because Ben & Co. can't communicate peeing right.  Same thing as real gold price suppression via the paper markets.
(ref, Jesse)

Sure, it's all fucking hunkie dorie.
The economies of the world are healed, the Martians are providing our global trade surplus buying all our gold, peace and harmony is breaking out all over, everybody's gonna hold hands and sing Kumbayah...
Not a damned thing has changed from 2 months ago.

Except a buncha bloody wankers mumbling some sorta new and improved scrotal gibberish.

Liquidity Trap, Credibility Trap, Japanese Model, FFS

Fri, 06/28/2013 - 13:50 | 3703880 James_Cole
James_Cole's picture

This is above the 30.63% from the prior week, and the percentage of ten-year equivalents available to the private sector decreased to 69.14% from 69.37% in the prior week.

Sorry if I'm behind the times, but what's this thing 'the private sector'? Is that a new venture by the fed?

Fri, 06/28/2013 - 14:01 | 3703903 SamAdams
SamAdams's picture

The FED is saying "no taper, get back in stocks!"  The test run rumor showed a recession will happen quite rapidly without continuous printing to buy bonds to keep rates low. 

When someone asks you how you know the FED is not part of your government, just explain it this way: 

1.  If our government could create its own money, it would not need the bond contract unless dealing with foreign entities.  It could just print money and give it to itself. 

2.  If our government created its own money, it would not charge itself interest on its own money.  If it did, it would have to print more money just to pay the interest.  This would cause inflation, a tax on the people.

Really, it's very, very simple, regardless of the obfuscation the FED promotes on its website.  Whereby the FED neither denies nor confirms succinctly that is a private corporation.

My Congressman recently told our county, "I'm not quite onboard with the FED being a private corporation".  I didn't get the chance to present these simple observations to him...

Fri, 06/28/2013 - 14:27 | 3704008 Bastiat
Bastiat's picture

 ". . . not quite onboard."  Priceless.

Fri, 06/28/2013 - 15:09 | 3704188 graspAU
graspAU's picture

1) Question :“People have often questioned about the Federal Reserve being a private bank or a private corporation. Is that in fact true?
– Gary Franchi, Republic Magazine

Answer: “It is…each one of the 12 banks is a separate closely-held private corporation. We’re literally owned by the banks in our district.
– Jerry Nelson, Public Relations, Federal Reserve Bank of Chicago, May 14, 2008.

2) “Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. These twelve private credit monopolies (Federal Reserve Banks) were deceitfully and disloyally foisted upon this country by the bankers who came here from Europe and repaid us for our hospitality by undermining our American institutions...The people have a valid claim against the Federal Reserve Board and the Federal Reserve banks.” 
- Louis T McFadden, Congressional Record, 1932, pages 12595 and 12596  (R-PA, Chairman of the United States House Committee on Banking and Currency 1920-31)

3) “Some people think the Federal Reserve banks are United States government institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”
- Louis T McFadden, Congressional Record, 1932, pages 12595 and 12596 (R-PA, Chairman of the United States House Committee on Banking and Currency 1920-31)

4) "...This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system (speaking of the Federal Reserve) is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance"
-Rep. Charles A. Lindbergh

5) The 1982 Ninth Circuit court case of LEWIS v. UNITED STATES, 680 F.2d 1239 ruled that the Federal Reserve Bank is privately owned:

“Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Federal Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations. Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region.”

Fri, 06/28/2013 - 13:55 | 3703900 prains
prains's picture

Suppresed vol accrues interest.

Fri, 06/28/2013 - 13:04 | 3703699 JFKFC
JFKFC's picture


Fri, 06/28/2013 - 13:05 | 3703703 Midasking
Midasking's picture

Perfect! Let them have all the worthless paper then watch them go flush.  The world can survive without a central bank ponzi scheme.

Fri, 06/28/2013 - 13:06 | 3703706 ekm
ekm's picture

Whoever undestands a COLLATERAL BASED SYSTEM can easily conclude that there is only one player in the market: THE GOVERNMENT OF USA


This thing hangs up on a order from the White House which can come next minute, next day, next week - I don't know- but it will come


There is no drop, there is no cratering, there is only the bottom of the ocean left. Few primary dealers or insurance/pension funds are going down.

Fri, 06/28/2013 - 13:19 | 3703758 disabledvet
disabledvet's picture

"unpoppable bubble." this is purely political as well. the Fed...i don't even think Bernanke every really "knew" what he was doing when they went all in on QE. obviously it had never been tried before on such a scale...let alone at such a time (our economy hadn't collapsed yet.) in the world of "let's make a deal" however if "We the People" give Wall Street 750 billion then asking "what do We the People" get in return being "Quantitative Easing" i would say all in all "pretty phucking good deal!" i can't speak for the Street cuz i've never been...but i sure know DC...and they're gonna tell these ass-clowns to take a hike. this has saved the whole District from guaranteed...."bad stuff"! i mean we're talking politicians folks...they have meet and greets! anywho i've looked at this from a different point of view throughout...i'm glad to see you all are finally getting up to speed. again i am agnostic where interest rates go from here. but trust me "Washington DC never saw a revolutionary funding source they didn't love." if you throw in tax revenues which are surging at the Federal level...well, let's just say it's no wonder EVERYONE isn't going after the IRS right now. now...let's start talking the fun stuff. WARRRRR! (and no, it's not because i love that stuff...but it's all that get's that town moving.)

Fri, 06/28/2013 - 13:32 | 3703805 kw2012
kw2012's picture

Except the next war may not be on foreign soil.

Fri, 06/28/2013 - 13:49 | 3703878 kchrisc
kchrisc's picture

So correct, as those of the US government, and their bankster masters, are already prosecuting a civil war against the American people. They are also preparing for when the American people catch on and rise up from their poverty and misery to try and take back their country.

Now you can write your masters in DC or you can prepare for what is here and coming.


The Four Rs

Rejection--No pay, no obey.

Revolution--They're preparing for it, you should be as well. See NDAA 2012/2013/2014, etc.

Retribution--We will know who and what these sociopaths are guilty of, and is there really any place for the likes of them in a restored Constitutional and civil society?!

Restoration--Restore the Constitutional republic.

Sat, 06/29/2013 - 14:09 | 3706180 scrappy
scrappy's picture

The only good thing about this propping policy is that it has given us TIME TO PREPARE.

We have examined what happened, what is happening, and hopefully consensus will arrive when more people wake up.

Get ready friends.

Fri, 06/28/2013 - 13:20 | 3703764 Everybodys All ...
Everybodys All American's picture

Few primary dealers or insurance/pension funds are going down.


Not sure I buy this statement...

Fri, 06/28/2013 - 13:24 | 3703772 ekm
ekm's picture

2 or 3 Lehman equivalents are going down


I do not see any other option

Fri, 06/28/2013 - 13:25 | 3703777 fonzannoon
fonzannoon's picture

If rates go higher that is happening.

The only other option is for them to start monetizing other assets.

Fri, 06/28/2013 - 13:26 | 3703780 ekm
ekm's picture

not much "assets" left over

the gov owns almost anything

Fri, 06/28/2013 - 13:30 | 3703799 Dr. Engali
Dr. Engali's picture

There are a lot of "assets" they can monetize...stocks, reits, student loans, private placements...the list of what they can buy is long.

Fri, 06/28/2013 - 13:32 | 3703803 fonzannoon
fonzannoon's picture

student loans rings a bell. Just a few strings attached.

Fri, 06/28/2013 - 13:41 | 3703841 NotApplicable
NotApplicable's picture

They like strings. Gives them more leverage.

Fri, 06/28/2013 - 13:56 | 3703891 ekm
ekm's picture

1)Gov already owns them.

Obamacare literally nationalized student loans


2) Repo market would not accept student loans as collateral

That's where the action is that few are talking about:


Sat, 06/29/2013 - 01:16 | 3705601 WojtekSz
WojtekSz's picture

gold would make an acceptable collateral when properly (=high) priced

Fri, 06/28/2013 - 13:30 | 3703792 game theory
game theory's picture

The monetization of "other assets" seems more plasusible each day. Taper treasuries and diversify the assets purchased until their targets are met.

Fri, 06/28/2013 - 14:01 | 3703925 Its Only Rock N Roll
Its Only Rock N Roll's picture

You mean when not if. 

Fri, 06/28/2013 - 13:41 | 3703842 Everybodys All ...
Everybodys All American's picture

I misunderstood your statement. I agree.

Fri, 06/28/2013 - 14:52 | 3704103 Its Only Rock N Roll
Its Only Rock N Roll's picture

look at them defend 2.50% today on 10yr UST....amazing


Fri, 06/28/2013 - 15:11 | 3704195 ekm
ekm's picture

Due to interest rate swap derivatives hanging off off the yield

Fri, 06/28/2013 - 15:15 | 3704212 Its Only Rock N Roll
Its Only Rock N Roll's picture

yes sir

spot on

quarterly reset....the buying they did in last hour was impressive.  Enough to put it under 2.50% with plent of room to spare.  Watch for reversal of that on Monday

Fri, 06/28/2013 - 13:41 | 3703789 reload
reload's picture

If BO is as much of a communist as many say, and he often looks, then he can pull the plug and the US quickly followed by the rest of the western world goes full soviet.

All your now worthless paper / 401K etc will be converted into `the patriot fund`

The income stream you relied on to service debt vanishes as the economy finally shudders to a halt and any `property` you thought you owned will quickly loose its equity. Then you loose it completely.

Fri, 06/28/2013 - 14:04 | 3703935 NotApplicable
NotApplicable's picture

He's a puppet! To claim he is an idealist (of any flavor) is to imply that he hasn't sold his soul.

Which isn't to say that all your predictions won't come to pass, but rather, not for the reason you've stated. He will do them if and when he is told to do so.

TPTB learned their lesson with JFK, having to hide the evidence of their "fix" to this very day.

Fri, 06/28/2013 - 14:17 | 3703980 reload
reload's picture


But they are not predictions, more an acknowledgement of the possibility.

The security apparatus of population control is in place after all.

Fri, 06/28/2013 - 13:49 | 3703845 CrashisOptimistic
CrashisOptimistic's picture

In general this is why there may be taper coming even if GDP is negative.

Some non economic reason may be out there and not talked of that compelled Bernanke to give a friggin taper timetable just 6 days before the 1.77% GDP number (that he assuredly already knew).

It may be the talk that "it will depend on data" is BS.  They may have this forced on them.

The alternate possibility, assuming they can do this legally and/or change the legality, is overpay for the securities.  If there are only 10 securities at 1000 dollars each but Ben wants to inject $20,000, he can pay $2000 to the PD who bought at auction for $1000.

The PD banks the profit and allegedly the money flows.

Fri, 06/28/2013 - 13:42 | 3703851 kentmills
kentmills's picture

With insurance assets, we're all unsecured creditors, right?

Fri, 06/28/2013 - 13:25 | 3703778 pods
pods's picture

Yep, and there is one sure fire way to make sure that the government ups the issuance of debt.


"I would like to solve the puzzle."


Fri, 06/28/2013 - 13:06 | 3703707 Cacete de Ouro
Cacete de Ouro's picture

I hope Bernanke has packed enough clean boxers shorts....or is it briefs?

not the most savory of images...

Fri, 06/28/2013 - 13:08 | 3703711 LawsofPhysics
LawsofPhysics's picture

Boom motherfuckers, this just like playing monopoly as kids when one person ends up with all the property and all the cash.  The rest of went outside and did something else.  If the kid insisted we keep "playing" we usually kicked his ass.

Fri, 06/28/2013 - 13:15 | 3703740 fonzannoon
fonzannoon's picture

The Bernanke Chronichles as written by Jack Handy.

I remember that one fateful day when Coach took me aside. I knew what was coming. "You don't have to tell me," I said. "I'm off the team, aren't I?" "Well," said Coach, "you never were really ON the team. You made that uniform you're wearing out of rags and towels, and your helmet is a toy space helmet. You show up at practice and then either steal the ball and make us chase you to get it back, or you try to tackle people at inappropriate times." It was all true what he was saying. And yet, I thought something is brewing inside the head of this Coach. He sees something in me, some kind of raw talent that he can mold. But that's when I felt the handcuffs go on.

Fri, 06/28/2013 - 13:25 | 3703775 Sweet Chicken
Sweet Chicken's picture




This should all end well. 

Fri, 06/28/2013 - 13:31 | 3703800 kito
kito's picture

GOLD BITCHEZ...........

Fri, 06/28/2013 - 13:34 | 3703812 Al Huxley
Al Huxley's picture

See what happens?  I told you...

Fri, 06/28/2013 - 13:36 | 3703817 kito
kito's picture


Fri, 06/28/2013 - 14:07 | 3703947 Bay of Pigs
Bay of Pigs's picture

OMG...what have we created?

Fri, 06/28/2013 - 14:35 | 3704033 resurger
resurger's picture


no shit kitoooo lol

Fri, 06/28/2013 - 13:48 | 3703876 Poundsand
Poundsand's picture

Where's that towel to wipe off my screen!

Fri, 06/28/2013 - 13:22 | 3703768 Timmay
Timmay's picture

This made my day because it is so true. Bravo.

Fri, 06/28/2013 - 13:42 | 3703849 game theory
game theory's picture

Monopoly usually resets when the winner ends up owning everything. In our case, the Fed monetized, and the bankers just gave themselves raises. Unfortunately, this is the only game in town...but I still don't want to play again.  

Fri, 06/28/2013 - 13:54 | 3703896 Poundsand
Poundsand's picture

Our games didn't reset, they just re-aligned.  If someone seemed to be getting too large an edge, the rest of us "forgave" rent until we dragged the big boy back into the pack.  

Fri, 06/28/2013 - 13:59 | 3703915 NotApplicable
NotApplicable's picture

You sound socialist/populist. ;)

I can't imagine a more boring version of that game.

Fri, 06/28/2013 - 13:08 | 3703712 Unprepared
Unprepared's picture

Bernanke, here's an idea that would put a cap on bonds rates while keeping a floor under equities, or at the very least, confuse the shit out of markets that everything is bid up:


Increase QE to 100B/mo and jack FF rates by 25 bps.


And you bitchez thought the Fed's toolbox is empty.


Fri, 06/28/2013 - 13:09 | 3703719 LawsofPhysics
LawsofPhysics's picture

love it.  Yeah, let's get people moving away from the petro-dollar even faster, that's the ticket...

Fri, 06/28/2013 - 13:32 | 3703808 Nue
Nue's picture

The world is going to have to sooner are later. The dollar is like a gangrene limb cutting it off will be painful but not doing it will kill you.

Fri, 06/28/2013 - 13:09 | 3703716 Oh regional Indian
Oh regional Indian's picture

our bonds have to go bust for us to be free of them...

Fri, 06/28/2013 - 13:29 | 3703791 Dr. No
Dr. No's picture

Only after you loose everything, are you free to do anything.

Fri, 06/28/2013 - 14:31 | 3704015 Bastiat
Bastiat's picture

. . . as long as it doesn't cost anything.

Fri, 06/28/2013 - 13:11 | 3703727 Jumbotron
Jumbotron's picture


This is why I love this site so much and has become absolutely essential to me for the last 5 years.

I have learned so much....and yet there is still so much more.  This is still a bit over my head in general....but the way this is explained...I get it.   And...damn.....simply....damn.

Just when I think I understand the Matirx now that I am out...this just peels back that additional layer that I never considered before.  The rabbit hole was and is incredibly deep.


Fri, 06/28/2013 - 13:21 | 3703767 fonzannoon
fonzannoon's picture

and full of mining stocks.

Fri, 06/28/2013 - 13:39 | 3703821 Al Huxley
Al Huxley's picture

Not exactly on topic but my Sandstorm gold seems to be benefiting from the mother of all short-squeezes today - up 18% at the moment.  At this rate, only another 200% and I'll almost be back to half of where the mining stock portfolio was before they started cratering...


Edit: ... and boy, those 3x funds can sure be a bitch when they turn against you - DUST down 21% so far.


Fri, 06/28/2013 - 13:40 | 3703837 fonzannoon
fonzannoon's picture

I almost added but I decided to cut my hands off instead. Then I almost sat there and mashed the "submit" button with my face and ended up cutting off my nose too.

Fri, 06/28/2013 - 14:24 | 3703993 eclectic syncretist
eclectic syncretist's picture

I ordered some more silver eagles today, and am feeling real happy about it too. 

Fri, 06/28/2013 - 16:57 | 3704673 PiratePawpaw
PiratePawpaw's picture

Couldnt find any silver today...

Picked up 50 rds 44-40 Win and 25 rds hornady z-max 45acp for 45 frn.

got him to throw in 7rds 45acp fmj and a coke.

still not a bad day. :)

Fri, 06/28/2013 - 23:22 | 3705501 Non Passaran
Non Passaran's picture

Welcome to the club :-)

Fri, 06/28/2013 - 13:11 | 3703730 Yancey Ward
Yancey Ward's picture

Well, either the Treasury starts issuing more debt, or the Fed moves onto purchasing something else.  I have always expected the Fed to eventually start purchasing the debt of US state and local governments at some point.

Fri, 06/28/2013 - 13:15 | 3703742 bnbdnb
bnbdnb's picture

I dont think they can.

Fri, 06/28/2013 - 13:32 | 3703806 WeekendTrader
WeekendTrader's picture

Rules will be changed. Don't worry about that.

Fri, 06/28/2013 - 13:48 | 3703875 NotApplicable
NotApplicable's picture

Yeah, originally the Fed wasn't allowed to own Treasuries AT ALL either, which was supposed to be enforced by paying large penalties.

Long story short, penalties never enforced, activity later on legalized.

It absolutely kills me that anyone still puts any trust in the sanctity of laws. Just because someone went to the trouble to define and write down the current level of mob rule, doesn't negate the fact that it's still merely mob rule.

Fri, 06/28/2013 - 14:37 | 3704045 teolawki
teolawki's picture

Don't you mean mobster rule?

Fri, 06/28/2013 - 17:57 | 3704834 Meat Hammer
Meat Hammer's picture

Laws are only for the little people.

Fri, 06/28/2013 - 13:46 | 3703865 Yancey Ward
Yancey Ward's picture

Sure they can- the Treasury can just guarantee it.  And I doubt they even have to take that step- rules are made for breaking.

Fri, 06/28/2013 - 13:12 | 3703732 reader2010
reader2010's picture

In God We Trust.

Fri, 06/28/2013 - 13:33 | 3703809 ThirdWorldDude
ThirdWorldDude's picture

In Gold We Trust.



Fri, 06/28/2013 - 13:13 | 3703735 surf0766
surf0766's picture

Tapper  hahha only the sheep fell for that one.

Fri, 06/28/2013 - 13:17 | 3703748 Al Huxley
Al Huxley's picture

The problem here is this idea that the market needs more USTs due to a need for 'good collateral'.  The issue is that USTs are still referred to as 'good collateral' and people have only peripherally or subconsciously acknowledged that 'good collateral' is now more of a technical designation than an actual description of what USTs are.  So as a result of building a system on an axiom (USTs are good collateral) that's no longer true (if it ever was) you get these apparent paradoxes (government is insolvent and spending itself into oblivion, but there's a 'good collateral' shortage because the FED is busy monetizing the debt).  As soon as the market comes to its senses (or is brought to its senses) and replaces the bogus 'USTs are good collateral' axiom with a more current one (USTs are instruments whereby you donate all of the principal to the US Govt in return for the comforting, if transient thrill of short term price appreciation and some token interest payments) all the paradoxes will disappear and the system will make sense again.

Fri, 06/28/2013 - 13:20 | 3703761 fonzannoon
fonzannoon's picture

It was the best of was the worst of treasuries.

Fri, 06/28/2013 - 13:20 | 3703762 Tinky
Tinky's picture

Well stated. Keep up the good work, Al.

Fri, 06/28/2013 - 13:38 | 3703830 Unprepared
Unprepared's picture

The important description/function here is "collateral". The "good" part refers to how much faith is placed on said collateral. In the land of debt-based economy, any collateral is good collateral.

Fri, 06/28/2013 - 13:42 | 3703847 Al Huxley
Al Huxley's picture

The faith is placed on it because it's referred to as 'good' and has been considered good for a really long time.  It's what happens when the whole system gets fixated on technical designations and rules and 'managing duration and convexity' not noticing that the underlying premise that makes it all work is not only untrue, but RADICALLY FALSE.  At this point it really is picking up pennies in front of steamrollers.

Fri, 06/28/2013 - 13:57 | 3703910 Unprepared
Unprepared's picture

90% of human problems/confusions fall under that umbrella: mis-naming.

Fri, 06/28/2013 - 15:07 | 3704179 Non Passaran
Non Passaran's picture

Quite appropriately the problem is referred to as "idols of the marketplace" :-)

Fri, 06/28/2013 - 13:49 | 3703879 NotApplicable
NotApplicable's picture

"Good collateral" = World's largest military

Fri, 06/28/2013 - 14:05 | 3703940 Al Huxley
Al Huxley's picture

With replacement parts made in China.

Fri, 06/28/2013 - 13:17 | 3703749 timbo_em
timbo_em's picture

2013 AD: Treasury (or almost any other worthless promise by a G7 state) = high quality collateral

Our kids and grandkids are going to laugh about the idiocy of our times.

Fri, 06/28/2013 - 13:27 | 3703786 kw2012
kw2012's picture

Umm, you mean our kids and grandkids are going to CRY about the idocy of our times.

Fri, 06/28/2013 - 13:52 | 3703890 NotApplicable
NotApplicable's picture

Well, the home-schooled ones, perhaps. The rest will sit fixated, staring at their Obamaphones waiting to be saved (or droned, if they're dumb enough to make any noise).

Fri, 06/28/2013 - 13:45 | 3703858 Burr's 2nd Shot
Burr's 2nd Shot's picture

Thanks to the miracle of the Fed's time machine, the earnings of future generations can be rehypothecated today.

Fri, 06/28/2013 - 13:18 | 3703753 JJ McApe
JJ McApe's picture

guys don't you worry. the economy is healing and the fed is doing gods work to help...


Fri, 06/28/2013 - 13:19 | 3703754 slaughterer
slaughterer's picture

Taper = a CNBS myth.  ( They have to do something for ratings.)   

Fri, 06/28/2013 - 13:19 | 3703756 Seasmoke
Seasmoke's picture

One of these 2013 weekends. It's going to fall apart.

Fri, 06/28/2013 - 13:19 | 3703757 johny2
johny2's picture

exponential growth or bust. may the God have mercy on us.

Fri, 06/28/2013 - 13:20 | 3703759 wcvarones
wcvarones's picture

Silly Tyler.

It's obviously just time to start monetizing S&P futures.

Fri, 06/28/2013 - 13:33 | 3703801 Dr. No
Dr. No's picture

Well thats the thing.  The FED can buy whatever asset it wants. 

Fri, 06/28/2013 - 13:54 | 3703895 NotApplicable
NotApplicable's picture

Not to mention the quality collateral that is issued by the states under the guise of "revenue anticipation."

Fri, 06/28/2013 - 13:20 | 3703760 rejected
rejected's picture

IMHO The whole point of the Fed monetizing is mute as I can not find any precedent showing such monetization schemes successful. Possibly after WWII when the debt was inflated away while GDP was soaring but that is no longer the case. I do however think they can keep the scam going for a very long time especially with the under educated masses of our time. When the crash comes I do expect a gold confiscation or at the least controls on it's use. Governments,,, ours especially since 1864 are to the point where anything they decree is viewed as "legal" ... whether it really is or not. Reviewing early 1900's history reveals even food hoarding resulted in confiscation and/or prison. These parasites will stop at nothing unless somehow forced. Good luck to you all...

Fri, 06/28/2013 - 13:26 | 3703783 game theory
game theory's picture

Forcing money/liquidity elsewhere is precisely one of the outcomes that the Fed intended.   The Fed can reduce Treasury purchases and easily make up the difference with another asset purchase (e.g. student loans).  The "feral hogs" are likely to get more agitated as this year draws on.

Fri, 06/28/2013 - 13:56 | 3703905 NotApplicable
NotApplicable's picture

Yeah, but can they do it while ensuring enough "people" continue to buy Treasurys at insanely high prices? That's what's important here.

Fri, 06/28/2013 - 13:31 | 3703796 kw2012
kw2012's picture

I know! Let's shut down all of the coal plants. Energy prices will skyrocket.  The revenue to the government from the taxes on energy will increase and we can use that money to buy even more treasuries.

Fri, 06/28/2013 - 15:00 | 3704140 bluskyes
bluskyes's picture

I've got one better, replace the coal plants with stationary bicycle plants, powered by those formerly collecting unemployment.

Barrack gets green energy
Michelle gets physical fitness for the nation
Bernanke gets 100% employment

Fri, 06/28/2013 - 13:34 | 3703813 semperfi
semperfi's picture

"The Fed Is Now Taking Over The Entire Treasury Market 20 bps Per Week"

Is that what Ben means by "taper"?  Take All Paper Emit Reservenotes

Fri, 06/28/2013 - 13:37 | 3703825 yogibear
yogibear's picture

Next Obama will hit Bernake and the fed on taking in state debt.

Fri, 06/28/2013 - 13:56 | 3703908 buzzsaw99
buzzsaw99's picture

Yeah, like that'll stop 'em. Those maggots will be buying common shares of AMZN & FB before the end of the year.

Fri, 06/28/2013 - 13:57 | 3703909 ebworthen
ebworthen's picture

I smell panic.

Rising dollar is going to hurt bottom lines of CAT, Deere, automakers, Coca-Cola, YUM, etc.

Fri, 06/28/2013 - 13:58 | 3703914 hayleecomet
hayleecomet's picture

I have dumb question. Who is the recipient of the interest payments on those treasuries held on the Fed's balance sheet.

Fri, 06/28/2013 - 14:05 | 3703943 The Invisible Foot
The Invisible Foot's picture

Don't forget to bring a towel.

Fri, 06/28/2013 - 14:06 | 3703946 Tombstone
Tombstone's picture

Just wait till the Kommies force you to buy treasuries in your 401K and IRA's.  There is some $6-7 trillion in private retirement accounts just waiting to be plucked by another Obummer executive order. 

Fri, 06/28/2013 - 14:50 | 3704093 bluskyes
bluskyes's picture

Registration is always the first step toward confiscation.

"...backed by the full faith and credit of the American people" The Chinese are going to call the US on that.

Fri, 06/28/2013 - 14:08 | 3703956 yogibear
yogibear's picture

One large financial vacuum cleaner sucking up trillions while only showing a $3.478 balance sheet?

Something stinks. Ala cooked books. Mark to fantasy.

Fri, 06/28/2013 - 14:11 | 3703964 Burr's 2nd Shot
Burr's 2nd Shot's picture

You know, this "problem" could be solved if the government would just eliminate taxes and borrow everything they spend. Supply of collateral would double.

Not sure of what it would be backed by, but, crisis averted!

Fri, 06/28/2013 - 14:35 | 3704034 ThirdCoastSurfer
ThirdCoastSurfer's picture

Ever been on a train that was standing still or moving slowly backwards when a train going the other direction passes you by and you feel as though you are moving? That is this economy. 

Fri, 06/28/2013 - 14:35 | 3704036 syntaxterror
syntaxterror's picture

A $100,000,000,000,000 Coin, minted of Unobtanium, and deposited in Paul Krugman's safe should do the trick.

Fri, 06/28/2013 - 14:37 | 3704046 icanhasbailout
icanhasbailout's picture

If the numbers in the article are correct and the pace does not change, the Fed will own every last Treasury as of December 2019.

Fri, 06/28/2013 - 14:54 | 3704113 Stuck on Zero
Stuck on Zero's picture

I will wager that Bernanke will collect about $100 million in "speaking fees" and "consulting" just after leaving office.  Just like Greenspan. Corruption at its peak.


Fri, 06/28/2013 - 15:12 | 3704199 Yen Cross
Yen Cross's picture

     " Shorting the markets on these days in July, might NOT be bad for your health."

Fri, 06/28/2013 - 15:12 | 3704201 q99x2
q99x2's picture

Another great reason to secede.

Fri, 06/28/2013 - 15:32 | 3704285 MagicMoney
MagicMoney's picture

UST's are "high quality collateral"?  Good one Tyler Durden. It's bubble mania. Flipping bonds to the next sucker who buys them. Why you think the bond market reacts negatively by tapering, or end of bond purchase program? I will call Bernanke's bluff on tapering. If he does, it could be disasterous. Sticky situation where Mr. Bernanke put himself.

Fri, 06/28/2013 - 15:31 | 3704295 Sutton
Sutton's picture

10s trade into 2.20 this summer.  Then scream out to 3.10.  Back fill ,then yield heads to near 4.

Then the stock market crashes.

Fri, 06/28/2013 - 16:14 | 3704506 Monedas
Monedas's picture

Beware the MIC ? .... Beware the Welfare Entitlement Complex, beware the Public Servant Oligarchy Complex, beware the Government Education Complex, beware the Democrat MSM Complex  ....  and beware the Federal Reserve Banking Complex .... I think that dear old "I Like Ike" warning was wanting !

Fri, 06/28/2013 - 16:19 | 3704521 orangegeek
orangegeek's picture

This is beyond the control of us minions. 


But I bet there's a few establishment families / houses / think tanks, like RAND, that are getting nervous about the Fed taking over things the way they are.


Not sure if Bernanke has a kevlar body suit, but he may need one soon if this purchasing spree continues.

Fri, 06/28/2013 - 16:21 | 3704541 Monedas
Monedas's picture

The Federal Reserve is a private bank and embodies all the evil of Capitalism .... and Congress is a private debating society ?  100 years of Federal Reserve, Keynsian, Socialist, Ponzi, Government Fiat, Central Planning, Egalitarian, Social Engineering bullshit .... and we are going to let them punt .... blame in on the free market and Capitalism ?  

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