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The Absurdity Continues: Fed Buys 30 Year Bonds Two Hours Before Treasury Sells 30 Year Bonds
Yesterday we noted the supreme absurdity of having the Fed buy 10 year Bonds two hours before the Treasury sold 10 year bonds (which obviously priced at terrific terms as there was a $4 billion hole created courtesy of the Fed if only for 2 hours). Today, the lunacy continues. The Fed has just bought $2 billion in 30 year bonds just two hours before the Treasury sells $13 billion in 30 year paper. The ponzi has become so glaring they don't even care to hide it any longer.
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I'm sorry, but I dont think I understand this right. May I try to recap what you are describing in my own words and then somebody slap me around for what I got wrong?
The Fed bought bonds from the Treasury before the Treasury actually auctioned those bonds to the public, right?
They then use these bonds (US debt to the FRBs) to issue FRNs, which put more money into circulation...please bear with me here...
So in effect, the FRBS is buying US government debt to issue more FRNs and pump the money supply.
By buying these bonds prior to competitive bidding with the various dealers, they get the best interest rates as arbitrarily set by the Treasury...right?
This then lowers the interest rate required to auction off the remaining bonds because it has taken a huge chunk right off the top of the bonds to be auctioned, rather than waiting to the end of the auction and buying what is left.
So, in one way of viewing it, this saves the US some interst debt, but it also shows a lack of confidence in the markets demand for US Treauries? Am I even close to be right on this?
This shit is so confusing, it seems to be designed to be confusing.
Thank you to whomever answers my noob questions.
I honestly don't know. Perhaps it does not matter in the long run. What I feel is that the noose is tightening.
If it doesn't matter in the long run get off this site and go read about celebrites on TMZ. If you want the counrty to stop incuring debt and cut spending then fine. Sure the UK has done that and is now double dipping for it. Japan did the same in the 90's and stayed in resession for 10 years. But yeah it sounds tought and manly to talk about tighening the belt.
Can someone translate this into English?
TMZ ... Chris Kelly and Octomom ... soooooo cooooool
Doug-Canada: The UK has NOT stopped incurring debt and has NOT cut spending. The government is spending more this year than last year and the hole is being filled by QE.
Here have some shut the fuck up ;-)
"At the start of its term in 2010, the Conservative-Liberal Democrat coalition government announced the biggest cuts in state spending since World War II.
Savings estimated at about £83bn are to be made over four years. The plan is to cut 490,000 public sector jobs. Most Whitehall departments face budget cuts of 19% on average. The retirement age is to rise from 65 to 66 by 2020.
The budget deficit is about 10% of GDP and unemployment - officially 2.67 million (8.4%). That is its highest level since 1994.
In the 2012 budget, Chancellor George Osborne announced several measures to ease taxes - including a 5% cut to the top rate of tax and a rise in the personal income tax allowance threshold.
However, he also cut the personal income tax allowance pensioners receive, reduced child benefit and raised taxes on tobacco and other items.
Public anger over the cuts has grown. More than 250,000 people demonstrated in London in March 2011 - the city's biggest protest since the 2003 Iraq war.
Protest camps sprang up in cities across the UK towards the end of 2011, echoing similar "occupy" sit-ins around the world."
Wow! Everyone panic!
http://www.ukpublicspending.co.uk/spending_chart_1900_2011UKb_11c1li0181280_899cs_F0t
LOL
Surely you jest, right?
You put up a BBC article from 2010 that does nothing but repeat the claims and plans of what politicians say they will do in the future as proof of anything? Then you follow it up with some kind of cut and paste from who knows where? Thats nuts.
Got any actual substantive links to the UK Treasury or any UK government bodies that maintain hard records of spending to back up your claims, or is this kind of unsubstantiated and unsourced political nonsense and posturing all you have?
Occupy idiots claimed all manner of pain over supposed cuts here in the US, yet none of them actually ever occured. The wails over the austerity that never was were loud, but entirely meaningless as nothing ever got cut. Unless of course one is so completely retarded that a decrease in projected spending increases for the future somehow counts as austerity which probably fits the definition for most of those idiots.
It was number from a May 2012 Article.
I really have liked your comments because we seem to disagree but you are not crazy or stupid. BUT please tell me your not one of those people who just stare stright at a fact and denie it becuase it doesnt work with your world view? Austarity in the UK is real. I know this is just a opinion area of a site but do I really have to go find and post the budgets for 2009 to 2012 for the UK?
In the UK they fight over if Austarity is a good thing not if it is a real thing.
The thing is I have not been able to find a real hard source that proves anything one way or the other. You may of course think as you please, but I would caution against using any unsourced major media articles as proof of anything.
Reading claims in newspaper articles these days is hazardous at best, the relationship between what passes for journalism and cold hard reality is tenuous.
I have no idea what the situation is in Canada, but here in the US we have had howls about an austerity that never existed. To the minds of many here, a projected cut in the growth of projected future spending increases qualifies as austerity. I have not been able to prove or disprove the corresponding claims in Europe, but ZH has run some articles showing that pretty much only Greece actually had a 2-3% reduction in spending, perhaps one other nation had a miniscule drop but I think it was ony Euro currency nations.
Fed buys on open market and this drives up the price (yields down). Treasury sells into the rise created by the Fed. Everyone, except those who enjoy reality over fantasy, is happy.
So the complaint is that this is market manipulation and not letting the prices run as the markets would take them?
Wouldnt this show lack of confidence in the US credit worthiness by our own Treasury and Fed and thus drive open market interest rates UP in the long run?
This makes my head hurt. Its like dribbling a basketball while trying to untangle a snarl of four different extension cords simultaneously.
Who would set things up this way except people playing a confidence game? Is that the point?
Eating your own shit never taste so good.
How could I become a primary dealer?
Sell your wife and kids!
Be born to the Rothschild family.
Why can't we call the continuation of POMO QE 3?
Or considering there was a QE 1.5 and a QE 2.5, with TARP and Stimulus, plus OT2, we are on QE 8.
Ok, I am really at a loss. Is it true that the Fed and Treasury bought and sold EXACTLY the same instrument? Same coupon, same maturity? I cannot for the life of me understand why they would engage in a wash trade unless it was to create liquidity.
Yes! Thank god someone here understands how this mechinisum works.
Actually this is a step in the less-absurd, more-straightforward direction. They are now openly monetizing debt rather than trying to do it behind everyone's backs cloak-and-dagger style. The cloak and dagger stuff was added absurdity to the situation that is now resolving itself.
http://en.wikipedia.org/wiki/Monetization
"In many countries the government has assigned exclusive power to issue or print its national currency to a central bank. For example, in the USA, The Federal Reserve Bank does this.[1] The government treasury must pay off government debt either with money it already holds or by financing it by issuing new bonds which are sold to either the public directly or the central bank, in order to raise the funds required to satisfy the debt. In this latter case where bonds are placed with the central bank, the central bank will create the needed money by conducting an open market purchase, i.e. by increasing the monetary base through the money creation process. This process of financing government spending is called monetizing the debt.[2] Monetizing debt is thus a two-step process where the government issues debt to finance its spending and the central bank purchases the debt, leaving the system with an increased supply of base money.
It should be understood, however, that a Monetarily Sovereign government has complete control over its sovereign currency. The U.S. became Monetarily Sovereign on August 15, 1971. Since that date, it has had the power to spend without borrowing (issuing debt), though it continues with that obsolete procedure.
Spending by a Monetarily Sovereign nation is constrained neither by taxing nor by borrowing, but only by inflation. This is opposite to a monetarily non-sovereign government, i.e. the euro nations, who have no sovereign currency. While the U.S. government is Monetarily Sovereign, the U.S. state and local governments are monetarily non-sovereign, thus must borrow and tax to pay their bills.
Great confusion exists in the minds of the public and even many economists, about the differences between Monetary Sovereignty and monetary non-sovereignty."
If I understand then, the Fed is continuing to create liquidity by increasing the money supply = partially because they still fear deflation. Their work is clearly inflationary and the only reason they would do this would be to combate deflation. The US does not have an apparent liquidity problem, insofar as there is adequate money to lend, loan and buy stuff with. For well over a year now the howling about the explosion of not only inflation but hyperinflation in the USA has no where surfaced. My question: why not yet? What is holding back obvious inflation?
Velocity.
Demand. You need Demand to have inflation.
Grafting skin form Ben's left ass cheek for the right side of Timmy's face; and from Timmys left face to Ben's right ass cheek.
Symmetrical and balanced.
"Problem? What problem?"
Must give the Prince of Printerton credit - it would be unethical maybe unconstitutional to print money for use by the treasury.
Fed can't print money.
WOW I got a - for pointing out something you learn in civics.
Rally warning continues...
Despite stockbears with their pre-election jitters, SPX choppy bullish daily & USDX bearish daily charts strengthen.
Significant equity / EURUSD upside & USDX retracement ahead.
http://www.zerohedge.com/news/2012-12-24/market-analysis
Please stop talking about a Ponzi Scheme,
You take in money on a Ponzi and it keeps going becuase your payout is never larger than what you take in. It dies when there is a run and the world finds out you don't have the dollars to back what you have been selling.
Bitch all you want about US policy but don't call it a Ponzi becuase you can never have a run on a dollar you control! You would just make more. This has problems BUT you can not ever default.
FYI it is this lack of control of currency that is the reason Italy and Spain could default.
Ah, an MMT'er.
Technically correct- the US can and does churn out endless amounts of electronic credits and so can avoid default in one sense but thats kind of hairsplitting because the end result is the same.
When everyone else stops accepting our 0's and 1's because they realize they are meaningless the whole thing melts down. It becomes stupid for a nation with a surplus or an investor to buy debt at sub-inflation levels to be repaid in more electronic credits instead of a warehouse full of tangible commodities. Our "currency" is increasingly poor as a store of labor and value as anyone who feeds a family knows regardless of official inflation numbers.
There will be bagholders, as time goes on and the monkey stops grinding the organ of endless centrally planned electronic currency creation because people have lost faith in it those who had their assets connected to it will be in the same position as those who were at the end of Ponzi pyramid.
Technical default? You may be correct, though you ignore completely the political component. Difference in impact on those who will be nailed to the wall? None.
For understanding why Spain is in the mess they are in it is important distinction. Also before no one takes our 1s and 0s there is a long period of dolar devaluation which will make US products more attractive and will create international demand. All this is heathy... Unless you are looked into a currency you don't control and your bull shit will not devalue enough to help your exports. Which again is why American situation is so much better than European.
And yes, very much an MMT fan.
Well yes, Spain and Greece are in the position that California and Illinois will be in when we have a federal government that tells them to go pound sand, and this day will come. They are not in the position of the US, this is certain- but Germany is simply not going to stand for bailing out their profligacy any more that the other US states will those I mentioned, given the huge cultural divide and massive polarization in the country that could well be the road to war.
I find MMT to be generally correct in spelling out how things really work in the sense that it reasonably accurately describes an insane monetary system, but I diverge from them when it comes to what should be done about things or how long it can last. They look at how things work and say "Well, this isnt such a bad thing, it just needs a little tweaking by da gubmint", I look at them and say "You must be out of your flipping minds if you think this is workable in the long term, quit enabling economic crackheadism and the underlying mechanism for a perpetual welfare and warfare state".
Much like this conversation lol.
Ok my last words here... promise. Extravagance as a cause for Spanish or even Italian current state is unfair. They are not Greece.
There is no War coming in the US. No way. Not in the blood. So long as TV stays on an cheap shit food is avalable on tap. Protest movment in US is capable of having a camp out till they police say boo.