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Why The Fed Is Being Forced To End QE

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Fed is being forced to end its bond-buying, cutting off the "free money for financiers" that has sustained a frothy stock market.

While the Federal Reserve presents itself as free to do whatever it pleases whenever it pleases, the reality is the Fed's own policies are constraining its choices. Take the taper of U.S. Treasury bond purchases--the heart of quantitative easing (a.k.a. QE or more accurately free money for financiers).

You probably know how this works:the U.S. government runs a deficit, as it spends more than it collects in tax revenues. This deficit is funded by the sale of Treasury bonds.
The Fed has been creating money out of thin air, a.k.a. printing money, and using this new money to buy Treasury bonds.
As the Federal deficit shrank, the Fed upped its bond-buying program (QE). As a result, the Fed was buying more bonds than the Treasury was issuing.This graph from from the excellent charting site Market Daily Briefing plots the Fed's bond-buying (printing) and the Federal deficit (issuance ofnew bonds, which is different from rolling over the existing debt as bonds mature and must be replaced with new bonds).
Many seem to believe the Fed was forced into buying bonds because foreign owners have been dumping their Treasury bond holdings. But if we look at a chart of foreign-owned Treasuries, we see a modest dip in mid-2013 that reversed later that year. Foreign ownership has reached a new high of $6 trillion:
Much has been made of China selling some of its Treasury holdings, but if we look at this breakdown of foreign ownership, we see relatively modest fluctuations in the holdings of both China and Japan.
As I noted in Are Capital Inflows Propping Up U.S. Markets?, foreign central banks buy Treasuries not just for reserves but to lower the value of their currency vis-a-vis the U.S. dollar, the idea being to boost exports to the U.S. by weakening their currency.
These dynamics have created a global competition for Treasuries, pushing yields lower. The Fed is in effect competing with foreign and domestic buyers of Treasuries, a competition that has heated up as Federal deficits have declined.
This can be viewed as one consequence of the Triffin paradox, something I have covered in depth:
As the issuance of new Treasury bonds (and thus U.S. dollars) declines, the demand for dollars will push the dollar higher.
A second side-effect is the Fed is forced to end its bond-buying, cutting off the free money for financiers QE that has sustained a frothy stock market. With the free money for financiers ending, the stock market will actually have to support its lofty valuations on its own merits.

If the market will continue rising without the Fed's injections of free money for financiers, then why is Wall Street so terrified of "hawkish" murmurings, never mind actually hawkish actions by the Fed?


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Fri, 08/22/2014 - 13:31 | 5130412 Herd Redirectio...
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Fri, 08/22/2014 - 13:35 | 5130442 Manthong
Manthong's picture

"With the free money for financiers ending, the stock market will actually have to support its lofty valuations on its own merits"

Geronimo !!!!

Fri, 08/22/2014 - 13:42 | 5130482 knukles
Fri, 08/22/2014 - 13:54 | 5130518 ZerOhead
ZerOhead's picture

Blast from the past...

The Chiasso financial smuggling case began on June 3, 2009 near Chiasso, Switzerland (near the Swiss/Italian border), when Sezione Operativa Territoriale di Chiasso in collaboration with officers of Italian customs/financial military police (Guardia di Finanza) detained two suspects (who appeared to be Japanese nationals in their 50s)[1] who had attempted to enter Switzerland with a suitcase in their possession with a false bottom containing what at first appeared to be U.S. Treasury Bonds worth $134.5 billion.[2][3][4]

Mckayla Braden, senior adviser for public affairs at the Bureau of Public Debt at the U.S. Treasury Department also said that this type of counterfeit bond scam "has been going on for years." Although these bonds, if fake, appear to have been of very high quality. Col. Rodolfo Mecarelli, the provincial commander of the financial police in Como, said that the bonds "are made of filigree paper of excellent quality."[1]

The Financial Times also reported that the two suspects "had been released" by Italian authorities. No additional comment or elaboration from the Guardia di Finanza headquarters in Rome was available.

Fri, 08/22/2014 - 13:58 | 5130533 Beam Me Up Scotty
Beam Me Up Scotty's picture


Yes, audit the fuckers.  They say they are tapering, how do we know?  They could still be pumping billions or even trillions and who would really even know?  They could pump the stawk market and keep bonds bid, and keep a boot on gold.  They can print as much as they need to goal seek any number they want.  And all we get to do is take their word for it.  Their balance sheet could be 40 trillion or 400 trillion not 4 trillion.  Thats how Oz works his magic, behind the curtain.

Fri, 08/22/2014 - 14:01 | 5130552 overexposed
overexposed's picture

Holy cow, look at Belgium in that third graph -- and compare it to the "correction" after the dip in the second.

Are we seriously to believe that Belgium, in an effort to "boost exports to the U.S. by weakening their currency," is single-handedly responsible for propping up the Treasury market?

Engage: credulity strain.

Fri, 08/22/2014 - 14:05 | 5130566 kaiserhoff
kaiserhoff's picture

I agree with Charles and the Tylers on this one.  The Fed has no choice.  The bond markets are unstable.

But QE has always been a sideshow and freebies for the banks.  Interest rates are the real deal.  We'll see what kind of guts Mr. Yellen has, soon.

Fri, 08/22/2014 - 15:31 | 5131116 ArkansasAngie
ArkansasAngie's picture

For me the qurstion is can they avoid it blowing up in their faces before the election ?

Fri, 08/22/2014 - 19:56 | 5132330 MalteseFalcon
MalteseFalcon's picture

The FED will simply buy bonds from foreign governments.

The cash give away to float the stock market will continue.

Fri, 08/22/2014 - 21:58 | 5132882 Anca1
Anca1's picture

I noticed that, too.  "Engage: credulity strain"  I'm thinking that is being mild in your disbelief!

Fri, 08/22/2014 - 14:03 | 5130570 Chupacabra-322
Chupacabra-322's picture

Absolutely! Tapering really means excelerated printing to these Sick, Psycopathic Scum Fucks. Besides, isn't Belgium buying Billions lately.

Fri, 08/22/2014 - 14:23 | 5130662 Bossman1967
Bossman1967's picture

They are selling all that gold paper they bought and buying treasries and stocks which also hides the actual state of the economy. The house of cards is wet and sticky here it goes yall. Multiple crises are going on. Are you ready?

Fri, 08/22/2014 - 15:31 | 5131123 hardmedicine
hardmedicine's picture

I still fail to comprehend how this has anything to do with the FED or anything else going on.  What gives here?


Fri, 08/22/2014 - 14:00 | 5130550 viahj
viahj's picture

the author ignored the blue line

Fri, 08/22/2014 - 14:12 | 5130614 Majestic12
Majestic12's picture

"It's for the children"

...gotta love "the children"...unless your Israeli...Ukranian...or any other pedophile Reptiles who slither through this galaxy.....

Fri, 08/22/2014 - 15:23 | 5131079 U4 eee aaa
U4 eee aaa's picture

It's for the children.

It reminds me of that Twilight Zone episode:

"To serve man"

Fri, 08/22/2014 - 13:51 | 5130519 Bangin7GramRocks
Bangin7GramRocks's picture

Cutoff QE. That's a good story bro! Tell me another, but make this one believable.

Fri, 08/22/2014 - 15:26 | 5131095 giovanni_f
giovanni_f's picture

Right. Reducing QE - the kaboom it would make in the financial system could be heard from Mars. It's frustrating to see how few people seem to be able to grasp the exponential dynamics of debt and the impossibilty to simply cut it back. 


Fri, 08/22/2014 - 14:36 | 5130762 Lewshine
Lewshine's picture

NEWS FLASH!! The Fed IS NOT forced to raise rates, neither will they!! It's lip service to sell the other side of their two sided argument. RECOVERY is one side   - DATA DEPENDENT is the other. They use both arguments to justify THE FACT that rates CANNOT rise without destroying their golden goose (US equities). 2nd NEWS FLASH, they've been doing this for 6 years. In 2011, they said they might pullback QE in 2012 because the recovery was SOOOOOO obvious. Said the same thing in 2012 about 2013...and so on. Wise up. QE until a dollar collapse - No other alternatives. BTFATH!!!!

Fri, 08/22/2014 - 13:44 | 5130496 Son of Captain Nemo
Son of Captain Nemo's picture


Yes of course. They'll "allow themselves to be audited" right after they get WWIII underway!

Fri, 08/22/2014 - 14:01 | 5130502 ZerOhead
ZerOhead's picture

They should audit Belgium as well any anybody else that picks up the slack...

Fri, 08/22/2014 - 14:10 | 5130598 Son of Captain Nemo
Son of Captain Nemo's picture

The long version...

While the Federal Reserve presents itself as free to do whatever it pleases whenever it pleases, the reality is the Fed's own policies are constraining its choices.


Destroying a few billion dollars worth of real estate in lower Manhattan as a pretext to start an "open ended protracted war on terror" for oil and to preserve U.S. dollar hegemony throughout the Middle East with no rational objectives or goals from the start killing and displacing millions and in the process bankrupting your own Country and Western European allies in order to pay for it.

And then:

7 years into it when you are completely out of money and resources fighting wars of choice and outsourcing your entire IT infrastructure to India and China you tell representatives in Congress that your bank must be bailed out to the tune of $700 billion otherwise the insolvency will be so catastrophic that you will need to declare a "second state of emergency" in addition to the emergency you already have in place on a "tactic", otherwise there will be rioting in the streets when people need to access their accounts.  Instead of bailing out the banks you lie to the government you are loaning the money to and take all of it to increase your own reserves and provide salary increases for yourself and use some of that money to help some of your "corporate" buds.

Followed by:

Starting a world war because no longer are any of your direct and indirect business associates interested in buying the "full faith and credit of the United States" backed by nothing when they know it's worthless and a gun is being pointed at them to keep buying more anyway -or else!

Fri, 08/22/2014 - 15:11 | 5130997 Professorlocknload
Professorlocknload's picture

No, they can't audit Belgium, that's why it's being used as clearing house/laundry facility.

And they can't raise rates here, so rates will stay low/ go lower, eventually weakening the dollar. Maybe the plan all along?

Of course, incrementalism is their stock in trade, so the jawboning will continue, just to temper the process a bit.

Have faith, the Feds dollar will eventually be exterminated.

Fri, 08/22/2014 - 15:20 | 5131061 JRobby
JRobby's picture

With a war on, documents are burned, blown up or otherwise destroyed. I think right after the first document request subpoena sounds like good timing........

Fri, 08/22/2014 - 15:29 | 5131111 hardmedicine
hardmedicine's picture

Son.,, every time I read through zero hedge I stop cold at your icon.  Is the dog standing on a treadmilll with a muzzle in it's mouth?




Fri, 08/22/2014 - 13:53 | 5130527 wmbz
wmbz's picture

Congress could order a full external audit tomorrow. Congress could could disolve the fed tomorrow.  However  the un-federal reserve has congress bought and paid for. Owns them all, lock, stock and barrel. Congress has no will to do anything to disrupt it's sugar daddy.

Decades of incest and they love it!

Fri, 08/22/2014 - 15:27 | 5131098 SeattleBruce
SeattleBruce's picture

"Congress has no will to do anything to disrupt it's sugar daddy."


Fri, 08/22/2014 - 15:32 | 5130896 Banker Buster
Banker Buster's picture

Maybe if U.S. can get someone in there like Rand Paul, he would unleash the fury on the Fed and make them have audits (and not audited by goldman sachs, a real audit) while scaling back their power and role in the U.S.  While he's at it, drop bernanke off at a Ferguson ghetto crack house.

One can dream can't he.


Fri, 08/22/2014 - 13:31 | 5130414 LawsofPhysics
LawsofPhysics's picture

Please, show me the real books.  QE, most certainly is not ending.  Show me the real balance sheet motherfucker.  In addition, ZIRP (NIRP in real terms) is far, far more destructive to real capital and savers.

Fri, 08/22/2014 - 13:36 | 5130448 indygo55
indygo55's picture

Couldn't agree with you more. What are the real numbers? Prove it! No one has seen the proof and no one asks. That would get you an appointment with nailgun manicure for sure. 

Fri, 08/22/2014 - 13:43 | 5130488 Kaiser Sousa
Kaiser Sousa's picture

Charles -
please give it up...
the fact that u believe that they are/will taper shows that you believe what the MoneyChangers tell you...
thus u r foolish...

always remember - Bankers are sociopaths...sociopaths r pathological liars....

until u recognize that fact u r not worth reading or listening to....

Fri, 08/22/2014 - 13:59 | 5130547 Kaiser Sousa
Kaiser Sousa's picture

" Johannesburg, 19 August 2014. A Krugerrand-denominated bond listed on the JSE last week, which gives investors direct exposure to gold, is the first of its kind to be listed worldwide. Rand Merchant Bank, a division of FirstRand Bank Limited, is the issuer of the FirstRand Gold Bond.

The Gold Bond has a term of five years and the first issue amounts to R2 billion. It requires investors to buy Krugerrands, which they then lend to FirstRand when purchasing the bond. At its expiry the value of the bond is determined by the current gold price, the Dollar/Rand exchange rate and the interest earned. This interest is calculated in terms of ounces of gold as represented by Krugerrands. Investors may take physical delivery of the Krugerrands on maturity or opt to get settled in cash.

"The notes provide direct exposure to the rand gold price and a positive yield in the form of interest ounces payable on maturity. It offers both inflation and rand/dollar exchange rate protection while avoiding the significant storage and administration costs associated with other direct gold investment options available. Current market conditions are particularly attractive for gold investment because of rand/dollar weakness and expectations of higher inflation," says RMB Debt Capital Markets co-head Dale Wood.

"The JSE was founded in 1887 as a result of the first South African gold rush. This issuance provides investors with a way to gain exposure to one of the oldest assets on our exchange in a new and innovative way," says Donna Oosthuyse, Director: Capital Markets at the JSE.

Investors may not hold gold in unwrought form according to South African law; however they still need to pay for the administrative costs associated with holding and storing gold when they invest in products which track the price of gold. These costs are eliminated by the Gold Bond because investors earn a yield on the bond instead of paying fees. Investors can also opt to take physical delivery of the underlying gold because it is in the form of Krugerrands which are legal tender in South Africa. "Investors also benefit as they are able to buy and sell the Gold Bonds on the JSE, with RMB acting as a market facilitator to ensure liquidity and price transparency of the notes," says Wood.

Investors can also get a Gold Bond note with a single Kruger rand, which means that retail investors can use it to gain exposure to the gold price. Investors who already own Krugerrands can use the Gold Bond to achieve the same exposure to the gold price they would have enjoyed when physically holding Krugerrand coins, while also earning interest on the bond."

Fri, 08/22/2014 - 14:33 | 5130750 forwardho
forwardho's picture

Wait, lets see, You buy Gold and give it to a bank.

They then give you a promissory note.

Trade Gold for paper?

What a novel idea.

Fri, 08/22/2014 - 14:21 | 5130650 RighteousDude
RighteousDude's picture

Mathematically impossible to give it up.


World Wide Jubilee !!!!

Fri, 08/22/2014 - 13:43 | 5130418 Taterboy
Taterboy's picture

It is forced to end so the George Soros shorts can work.

Fri, 08/22/2014 - 13:32 | 5130420 Pairadimes
Pairadimes's picture


Fri, 08/22/2014 - 13:33 | 5130431 symtex411
symtex411's picture

in the new world about to take place ... bull + bull = bear?

Fri, 08/22/2014 - 13:42 | 5130469 Schizofrantic Squonk
Schizofrantic Squonk's picture

According to the article, the bill bans the state from selling the flag:

"The California Assembly on Monday passed legislation that would ban the state from selling or displaying the Confederate flag..."

I have no issue with that. On the other hand, if the article is sloppily written, and the intent is to ban the sale of the flag in the state, I see a pretty obvious constitutional violation.


Unless, of course, it's considered an assault flag.          /s

Fri, 08/22/2014 - 13:44 | 5130495 LawsofPhysics
LawsofPhysics's picture

Good points, one does have to wonder why the folks in D.C. would want to ban the sale of non-lethal protective gear..

Fri, 08/22/2014 - 14:29 | 5130715 forwardho
forwardho's picture

Assume your musing is fasciatus.

Seems intent is very, very clear.

Fri, 08/22/2014 - 14:07 | 5130591 itchy166
itchy166's picture

Meanwhile, the manufacturers of false flags can't keep them on the shelves...

Fri, 08/22/2014 - 14:09 | 5130600 knukles
knukles's picture

Nah... no CA political entity would even bother to fly a Confederate flag... so kinda redundant (or retarded waste of time)
BUT.... there are plenty out here would fly ISIS, AlCiaDuh, etc.
lots and lots and lots
See they're the religion of peace... and I shit you not... that's how the CA Progressives view the Muzzies, as a whole

Fri, 08/22/2014 - 13:55 | 5130537 AGuy
AGuy's picture

What about the Hammer and Sickle Flag?

Fri, 08/22/2014 - 14:09 | 5130594 trembo slice
trembo slice's picture

We'll be adopting it shortly...

Fri, 08/22/2014 - 14:12 | 5130612 knukles
knukles's picture

That or simply change the name on the flag from California Republic to People's Republic of California
Already on tee-shirts, etc.

Fri, 08/22/2014 - 14:14 | 5130622 astoriajoe
astoriajoe's picture

I think they just opened a factory for those, so...

Fri, 08/22/2014 - 14:39 | 5130782 combatsnoopy
combatsnoopy's picture

Actually that ban needs to happen.  It's one of the first thing that the nanny state got right. 
Dixies are THE dumbest mofos ever during the history of this planet.   

Where is Gramm from?  The deep south.  Where are the Clintons from?  The deep south.  
Since when did racially harassing, intimidating and physically attacking minorities ever work to benefit the welfare of the racists?  


It's just a group of thugs who get federal funding (social security, welfare, food stamps, disability and unemployment) to do nothing but antagonize and harass minorities, buy meth and a loan for a lifted truck and price inelastic tax for the fuel they can't afford.

You can just go to either Simi Valley, Fresno or Riverside to see the blessings made from the white supremacy has bestowed for the trouble they caused. 

 just trust me on this one, it's better this way.

Fri, 08/22/2014 - 15:33 | 5131137 Professorlocknload
Professorlocknload's picture

Moonbeam don't like them Southern Democrats?

Fri, 08/22/2014 - 17:38 | 5131696 Prince Eugene o...
Prince Eugene of Savoy's picture

Surely now those Assembly laggards will get around to banning that annoying Redskins logo, the racist Mississippi state flag and, of course, any likeness of Richard Nixon.

Then you'll see, everything'll be AOK.

Fri, 08/22/2014 - 13:35 | 5130444 101 years and c...
101 years and counting's picture

look at that blue line that was practically zero until August, 2011.  and has been rampaging since.  belgium is just the intermediary for the fed as they continue to print $85B per month to buy bonds other foreigners are still dumping.

Fri, 08/22/2014 - 13:46 | 5130467 SheepDog-One
SheepDog-One's picture

Or more, probably over $100 billion a month by now, thru the Belgium back door.

Fri, 08/22/2014 - 13:55 | 5130535 Dr. Richard Head
Dr. Richard Head's picture

Belgium Back Door sounds like a porno or a band name.

Fri, 08/22/2014 - 14:14 | 5130630 astoriajoe
astoriajoe's picture

or in Germany, the title to a children's book.

Fri, 08/22/2014 - 19:00 | 5132079 zipit
zipit's picture

Don't metion Germany when someone is talking about porn, you may incite some kind of pee/poo sex fest or whatever it is that the germans are into these days.

Fri, 08/22/2014 - 14:19 | 5130649 TheFreeLance
TheFreeLance's picture

Full title -- Belgium Back Door: Walloons Gone Wild

Fri, 08/22/2014 - 15:05 | 5130966 Kayman
Kayman's picture

Belgium has to be Euro swaps. Europe holds U.S. shit paper in exchange for the Fed holding the equivalent European shit paper. Everyone's a winner...n'est pas ?

Fri, 08/22/2014 - 13:36 | 5130445 tjeffersonsghost
tjeffersonsghost's picture

Obama the deficit hawk?

Fri, 08/22/2014 - 13:38 | 5130456 SheepDog-One
SheepDog-One's picture

I believe the FED is ending QE about as much as I believe I'll start sharting kilo bars of gold today.

Fri, 08/22/2014 - 13:42 | 5130476 Winston Churchill
Winston Churchill's picture

Keep us informed on that .

Fri, 08/22/2014 - 13:40 | 5130463 Otto Zitte
Otto Zitte's picture

Honey, I sold the kids. But I got a great price!

Fri, 08/22/2014 - 13:39 | 5130464 russwinter
russwinter's picture

"Belgian Buyer of Treasuries is BIS aka Rothschilds Backdoor Money Laundering

Fri, 08/22/2014 - 13:39 | 5130465 mayhem_korner
mayhem_korner's picture



QE doesn't stop until ALL central bank (sic) stop printing.  And that just isn't going to happen.

Fri, 08/22/2014 - 13:41 | 5130470 Sudden Debt
Sudden Debt's picture

Think about this:

You need money
You loan money from yourself....
Money you print... Yourself...
And you don't pay interest on it...

And with that money you pay people their bills...

No... Who in their right mind... Just accepts this anymore?

Fri, 08/22/2014 - 13:46 | 5130501 Tjeff1
Tjeff1's picture

"You need money
You loan money from yourself....
Money you print... Yourself...
And you don't pay interest on it...

And with that money you pay people for their goods...

And when they complain you punch them in the face...

Corrected it for ya!!

Fri, 08/22/2014 - 13:51 | 5130517 Al Huxley
Al Huxley's picture

When you put it that way it all sounds so dubious and crooked...

Fri, 08/22/2014 - 14:05 | 5130578 A82EBA
A82EBA's picture
Fri, 08/22/2014 - 14:22 | 5130660 GreatUncle
GreatUncle's picture

You stated the reality the consequence is ...

people have been so screwed by allowing banks / central banks to create money out of nothing like this ...

Nobody said a word, because in the beginning you got a nice little bit of the action to keep you sweet like a bankster handing you a million dollars. Then while you weren't looking he created 100 for every 1 you held rendering you a poor gullible fool.

So a financial insight ...

People are worse than sheep because a sheep will run from a wolf over a cliff if need be to save itself not climb into the jaws of a bankster to be sucked dry.

Fri, 08/22/2014 - 15:12 | 5131008 Kayman
Kayman's picture

Great Uncle:

Most people can't grasp what these financial criminals do.  You can work hard and save all your life. But these crooks can conjure up a $billion, nay, a $trillion in a micro second.


Fri, 08/22/2014 - 15:46 | 5131195 chirobliss
chirobliss's picture

Nobody said a word, because in the beginning you got a nice little bit of the action


Rubbish! Utter rubbish. Everybody screamed bloody murder over QE, everybody, and not just the closed-minded royal-order-of-gold-hoarding-circle-jerkers that is ZH. Everybody screamed it would blow the world up but it didn't, so admit you were wrong and STFU.

Fri, 08/22/2014 - 13:43 | 5130484 firstdivision
firstdivision's picture

Belgian buy!=foreign buyer

Fri, 08/22/2014 - 13:43 | 5130490 Tjeff1
Tjeff1's picture

Real issue is going to be the following:

When Japan is forced to support the Yen due to its collapse, and in doing so will have to very quickly sell US paper, what will that do to the dollar?  Interest rates?

Expect this to be the trigger, in maybe 6 months tops.

Fri, 08/22/2014 - 13:43 | 5130493 SheepDog-One
SheepDog-One's picture

Seems 'the financiers' are completely untroubled by this supposed end of their free money....gee I wonder why that could be? Because they know its not ending at all, but just being done behind the curtain now? Mission accomplished, Fed heat off.

Fri, 08/22/2014 - 13:53 | 5130523 Monty Burns
Monty Burns's picture

To my mind the heading is completely  wrong.  The reality is that the high demand for Treasuries means the party can continue.  What am I missing here?

Fri, 08/22/2014 - 14:03 | 5130569 IANAE
IANAE's picture

...the taper should, ostensibly, remove some of the demand going forward.

Fri, 08/22/2014 - 17:24 | 5131630 Monty Burns
Monty Burns's picture

Thanks guys.

Fri, 08/22/2014 - 14:27 | 5130701 Amish Hacker
Amish Hacker's picture

It may be that a lot of that "market demand" is coming from the Fed via proxies (e.g.  Belgium), as several posters have noted, above. Or, equally likely imo, the Fed really is cutting back on its purchases of Treasuries. Why? Because the TBTF banks are telling the Fed to quit crowding them out. With the Federal budget deficit declining, fewer new bonds are being created, and every one of them is desperately needed to keep the derivative markets from going splat.

Fri, 08/22/2014 - 13:46 | 5130505 The Phallic Crusader
The Phallic Crusader's picture

As the issuance of new Treasury bonds (and thus U.S. dollars) declines, the demand for dollars will push the dollar higher.


Huh?  No - no, it won't. As the Fed has monetized trillions, maybe 10+ trillion, in the past 5 years, it has allowed the US to massively add to its proximate debt burden/service.  This means higher taxes, this means fewer people buying anything, including imports...  it means more government debt issues with more and more yield on less and less valuable fiat.  Inflation is really over 5%.  Jobs continue to be exported as unskilled immigrants continue to flood the country and saddle public services/health care/welfare with more hungry, sick mouths.

The US is like a degenerate gambler who's been asking to be fronted more and more money as he continues to dig a deeper and deeper hole.  Charles gets it wrong by thinking this will go on, that the dollar si the least worst game in town...


Banks and large corps are already sitting on hundreds of billions. Equities are in a massive and obvious bubble while housing is in a less obvious bubble. 


The ability to grow debt, and to expand credit is reaching its end point.


The dollar will shrink, not collapse - watch.  Meanwhile, the wealthy will buy up real assets, as always, as the purchasing power of the dollar starts to get kneed in the groin over and over and over.



Fri, 08/22/2014 - 15:48 | 5131212 daveO
daveO's picture

The ability to grow debt, and to expand credit is reaching its end point.

It was reached in 2008. The Fed gov. started heaping on debt to fill the void and steal from the from average dollar holder to support banksters. This can go on as long as foreigners are willing to buy bonds. Since China believes in slave labor, that means until we're all enslaved. Back to work debt slaves!
Fri, 08/22/2014 - 13:49 | 5130512 nosoeawe
nosoeawe's picture

oh bullshit. the feds will never and can never end QE, it will exist forever in some form, shape or fashion.

-if the stock market crashes - what will yellen do - print
-printing is inflationary (so is employment)
-the asset bubble has to be as large or larger than the equity bubble
-whats keeping rates low - QE
-what is the debt payment on 17 trillion (doesn't matter, the US can't pay it)
-cunt yellen will simply leverage euro clear 

like is said, yellen and qe is the HIV to the financial markets. once they have it, they'll never get rid of it. once the feds get their slimy power hungry fingers on anything, it's there to stay. the govt doesn't shrink





Fri, 08/22/2014 - 14:14 | 5130626 forwardho
forwardho's picture

Each and every day that they are able to sustain the fantasy, I give thanks.

Everyones current life in the US and world depends on the logic you state. Should the "can" ever slam up against the wall of reality...


Sat, 08/23/2014 - 05:51 | 5133608 CHX
CHX's picture

Should the "can"... That's a when, and not an if. Prepare accordingly.

Fri, 08/22/2014 - 13:55 | 5130528 john milton
john milton's picture

qe will end but eq will follow, what is it, I dont know yet but surely it will take us above 21000 so dont worry

Fri, 08/22/2014 - 13:56 | 5130539 Jack Burton
Jack Burton's picture

Information released by the Fed is mostly a facade or smoke screen. Behind closed doors they use their nearly unlimited powers in ways we can't know. But, I will be amazed if this QE things ends, if interest rates are ever set by market forces again. The giant derivatives creation of the banks is a nuclear war waiting to blow. The markets are Fed creations not at all dependent on economics or the real economy. I mean, fucking hell, how can I or anyone outside the Fed have a clue what these fuckers are really doing? And they are private which means they are free from our oversight, though they control our economic lives. How would America's founders really react if they could see the acts of the Federal Reserve? Well, remember what they did to the King's Tax Collectors, the Agents of the Crown who fleeced the colonists of most all of their created wealth. They Tarred and Feathered them and ran them out of town on a rail! Wouldn't it be nice to recapture our revolutionary spirt, the spirit that made America, and go after these fuckers?

Fri, 08/22/2014 - 14:14 | 5130629 himaroid
himaroid's picture

The term "lynching" came from the hanging of Lord Granville's corrupt tax collector at Lynch's creek near here. And yes my people were in on it. I hope to live up to the family tradition some day.

Fri, 08/22/2014 - 14:03 | 5130559 taketheredpill
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Here's one scenario.  SP500 tops just over  2000, around the level suggested by regress to 2012 or 2009, then turns lower hard and fast.  Then the Fed says something that hints that QE is back on, or maybe buying ETF or other assets or whatever, and then equities scream higher again.


I know this will end relatively soon, but I may not be alive or employed to witness it.


Fri, 08/22/2014 - 15:40 | 5131170 daveO
daveO's picture

Trusted FED policy since August 1987. 

1.New Chair Satan.

2.Raise rates and crash markets.

3.Ride to the rescue wearing white hat and trillions in funny money.


Fri, 08/22/2014 - 14:02 | 5130562 londoncalling
londoncalling's picture

gov not spending enough for fed to keep qe going. taking on isis and russia might help out there

Fri, 08/22/2014 - 14:21 | 5130642 I Write Code
I Write Code's picture

The blessed foreign demand for US dollars and treasuries continues apace, and even the Fed never imagined this level of demand, and yet it is now conflicting even with QE.

But if QE ends ZIRP ends won't the short interest rates pop up?  Invert the yield curve?

It is hard to imagine this much demand for treasuries.  What it is, is there is just too much money sloshing around the world today looking for something to do, so much money that it can't even be spent by the 0.01% who hold it.  Maybe that's a good thing?  I mean, if they gave it out to millions of people it would be spent, causing inflation - by classic logic.  Or would it cause demand?  So maybe it's not really too much money sloshing around, it's too much money being withheld from the real economy.

But while bond interest can't hardly go lower than zero - though our Euroweenie friends are exploring new frontiers there - gold could be bid up to $10,000/ounce.  Why isn't this happening?

Just as I've said since 2008, the old textbooks are just NFG anymore.  We're in the New World Order, only nobody bothered to read the instruction manual ... nor even write it.

Fri, 08/22/2014 - 15:38 | 5131141 daveO
daveO's picture

Gold will rally if deflation hits and banks start closing. That hasn't happened since the 30's. Here's the key to deflation.

As I noted in Are Capital Inflows Propping Up U.S. Markets?, foreign central banks buy Treasuries not just for reserves but to lower the value of their currency vis-a-vis the U.S. dollar, the idea being to boost exports to the U.S. by weakening their currency. 

They must continue purchases of bonds to import more US dollars. Like a leech injects blood thinners. This is deflationary. Only FED printing(counterfeiting) overcomes this. No way they can stop permanently w/o huge deflation.  

Fri, 08/22/2014 - 19:21 | 5131182 GooseShtepping Moron
GooseShtepping Moron's picture

Sweet post, Code. +10

The way I look at is, the treasuries are being used to anchor the complicated derivative structure necessary to keep interest rates low. I always have to begin by asking myself a question: Why does the average American accept the status quo? Why does J6P buy a house with a mortgage which causes him to eventually spend three times the listed price of the house in interest, with the  bank pocketing the difference, even though the risk of default is actually quite low? What does he get in return for that extra money? The answer (pace the beliefs of many ZHers, I'm sure) is not "nothing." It isn't a mere a ripoff; what J6P gets in return is the financial system working furiously to keep the purchasing power of American money far above the world average, so that he can have access to all the consumer goods of society in exchange for labor that can be performed in China for 50 times less cost. What we often consider to be a ripoff is really the fee we pay to keep the status quo working in our favor; America would be burnt if we ever allowed real wages to normalize relative to the global average.

Now, that all sounds tangential, but here's how it relates to you point. All that "extra money" you mentioned is money of a different order. It's not the same as the real money that real people work for and spend every day, and it was never meant to enter the real economy. It's just used to keep the derivative architecture in good working order. In that respect, it is kind of like the huge standing armies and navies that the powers of Europe maintained prior to WWI. These forces weren't meant for actual fighting; they were meant to serve as hefty pieces in a chess game which was to take the place of actual fighting, a chess game of out-preparing and out-maneuvering the enemy so that he would conclude that fighting wasn't worth his while. When these standing armies finally fought each other, the result was a deadlocked bloodbath of waste and carnage.

Just so shall it be when the derivative money starts acting like real money.

Fri, 08/22/2014 - 14:26 | 5130700 orangegeek
orangegeek's picture

All true.  Watching the USD climb and the Euro tank. 


Many are in denial.

Fri, 08/22/2014 - 14:48 | 5130870 Loucleve
Loucleve's picture

If the market will continue rising without the Fed's injections of free money for financiers, then why is Wall Street so terrified of "hawkish" murmurings, never mind actually hawkish actions by the Fed?

Terrified of hawkish murmurings = tell the lemmings to sell their bonds and buy stocks.

Fri, 08/22/2014 - 14:56 | 5130927 Haloween1
Haloween1's picture

If the Fed is running out of Treasuries to buy, they can always buy corporate debt or even equities.


Fri, 08/22/2014 - 15:28 | 5131099 daveO
daveO's picture

By my math. $17T total US debt - $4 T held by FED - $6 T held by China and Japan = $ 7 T held by others. If nobody sells bonds, the dollar rallies and here comes the boogeyman, deflation! Can a false flag be far behind? 

Fri, 08/22/2014 - 15:13 | 5131015 FrankieGoesToHo...
FrankieGoesToHollywood's picture

The author assumes the FED can/will only by Treasuries.  However, there are many asset classes which can be purchased with USD when there are no Treasuries available.

Sat, 08/23/2014 - 20:12 | 5135544 bid the soldier...
bid the soldiers shoot's picture

 "there are many asset classes which can be purchased"

Which is your favorite class of assets that the Fed can purchase?

Mine are the TOXIC Assets.

The Fed's liquidity injection was made by issuing credit to banks and simultaneously buying back troubled (i.e., subprime) banking sector assets. While the banking sector's balance sheet ballooned with cash and cash equivalents, the Fed's own balance sheet witnessed a sharp rise in the very troubled assets it was removing from the banking system.

Fri, 08/22/2014 - 15:36 | 5131150 chirobliss
chirobliss's picture

Oh Gawd!! ZH is such a pathetic shell of its former self, no reasoning, no logic, no mea culpa. The ZH headlines have been "Fed can never end QE" for the last five years and now, as it winds down, ZH jumps on the equally clueless "Fed can never, ever do more QE".

Just admit it little idiots-you were wrong for the last ten years and you'll be wrong for the next.

Sat, 08/23/2014 - 19:51 | 5135487 bid the soldier...
bid the soldiers shoot's picture

You are assuming there will be 10 more years.

Or maybe just wishing.

Fri, 08/22/2014 - 23:23 | 5131181 bid the soldier...
bid the soldiers shoot's picture
Doubt thou the stars are fire,
Doubt that the sun doth move,
Doubt truth to be a liar,
But never doubt the Fed of MBS assets is still a major buyer.

"In November 2008, the Fed announced a $600 billion program to purchase the MBS of the GSE, to help lower mortgage rates.[11]"

"In March 2009, the Federal Open Market Committee (FOMC) decided to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of government-sponsored agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion during 2009, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities during 2009.[8]

"The type or scope of assets eligible to be collateral for such loans has expanded throughout the crisis."



Fri, 08/22/2014 - 16:17 | 5131353 Chuck Knoblauch
Chuck Knoblauch's picture

Inflation? That's a good reason to stop QE.

Sat, 08/23/2014 - 08:40 | 5133803 AdvancingTime
AdvancingTime's picture

They can talk about deflation all they want but I contend the government has built in a solid tilt towards inflation in many of its programs when it became the main player in our economy. I have come to the conclusion that while inflation appears tame and government claims it is low it is growing.

The seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future.  Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. More on this subject in the article below.

Fri, 08/22/2014 - 17:22 | 5131617 malek
malek's picture

I'm starting to wonder if the Fed some day blows up the financial system themselves by accident, as they have started believing their own lies "we have it all under control, we can raise rates anytime"
and because of that one day they really do raise rates in a meaningful way and it goes KABOOM.

Sat, 08/23/2014 - 00:58 | 5133348 hedgiex
hedgiex's picture

Other creditor nations like China are not under benign econ conditions with the global consumer of last resort (US) gone. They do not have the same monetary structure of US and even EC now to hold domestic currency and absorb the global flood of US$. To do so will damage their export machineries that cannot yet be wound down without serious unemployment and social stresses.

Only alternative left is to park it in US Try. Arguably "OK" even you pay a fee for the parking i.e. negative inte rate. Only the bureaucrats think that these creditor CBs and Econ Planners are morons that have to be yield chasers or incentivized into productive real assets in US. The long term game if you are a Creditor is to be assiduous (i.e. sit on your arse) and wait to pick up assets meaningful to them (in their case-hi end tech gears) at basement prices.

Look like they are lusting for the meltdowns of EC more so than US where they can eat their lunches with their US$ reserves. Wall St is hopping mad as these creditors are not enticed by their snake oils (derivatives) or their touted equities. Of course, top of the cream global investment bankers like Goldman is in their payroll and you can bet shall bend backwards to help them and not screw rich long term sovereign clients.


Sat, 08/23/2014 - 07:14 | 5133622 Youri Carma
Youri Carma's picture

Following this reasoning, the FED must stop buying bonds because others than the FED are already buying loads of bonds and thus there are not enough bonds left for the FED to buy.

Vice versa this means that when others don’t buy enough bonds the FED must buy them themselves and thus taper off. But for the moment taper on.

This also means that less money is coming from rolling over the existing debt as bonds mature simply because there less and less bonds to mature.

Could this get to be a problem for the FED?

Oh, and we have this mysterious Belgian bond buying. Some say it's the FED, others say it's China or Russia?

And than we have this from Gavekal Capital Blog. Completely counter-intuitive but therefore not less true since it's empirical:

The Flow of QE Suggests Lower Bond Yields and Stock Prices

Treasury Bond Yields Following Perfectly the Reduction of QE with New 1-Year Lows

Indeed the 10-Year yield went from say 2.5%+ to 2.4% now?

So what's the reason for this? Because, according to Gavekal Capital Blog.

"So - tapering is tightening on risk assets..."

Fed’s Dudley Explains Why Bond Yields Are (And Will Stay) Low

In other words, if and when the Fed starts raising rates, the highest rate to which it will raise rates in the next cycle is now expected to be notably below previous historical ‘norms’. And stocks didn’t like it and long-term bond yields tumbled…

The Simple Reason Treasury Yields Are Going Lower: Half A Trillion More Demand Than Supply

My understanding always was that the FED bought it's own treasuries to sustain low rates because there was no one else to buy them.

But this reasoning seems to be wrong since there is enough demand for US treasuries other than the FED. That's also the reason, according to the piece above from Charles Hugh Smith, that "the Fed Must Taper".

So why could the FED not simply issue more bonds which seems to be in great demand from other than the FED and use that money to prop up the stockmarket?

Sat, 08/23/2014 - 08:31 | 5133789 AdvancingTime
AdvancingTime's picture

This does not address your question, but as I see it lower interest rates were driven and achived by dumping and printing more money. I see lower interest rates as the main driver of this economy and they will not remain when money begins to seek a fair return for risk. Below are a few of my thoughts on this and and I reserve the right to be wrong

At some point the return on loaning money is simply not worth the risk!  It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

 Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.


Sat, 08/23/2014 - 08:19 | 5133755 AdvancingTime
AdvancingTime's picture

While I agree with much of what is in the article it does not address the fact that both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were made on the assumption that the advantages we enjoyed would continue.

Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about evermore growth. Now reality has begun to come into focus and it is becoming apparent that this is unsustainable. The entitlements and promises that have piled up have become overwhelming. More on why this system will fail in the article below.


The article also assumes other nations and people will want to leave their Wealth in the dollar and invest it in bonds. while few other alternatives exist this is not a given.


Tue, 08/26/2014 - 09:58 | 5144563 josephpetronyc
josephpetronyc's picture

this statement is bogus "Fed was forced into buying bonds because foreign owners have been dumping their Treasury bond holdings. But if we look at a chart of foreign-owned Treasuries, we see a modest dip in mid-2013 that reversed later that year. Foreign ownership has reached a new high of $6 trillion"

cause if you take out the (us funded) fake Belgium buying it only 5.8Til so flat to lower


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