This page has been archived and commenting is disabled.

Behold The Fed's Takeover Of The Bond Market

Tyler Durden's picture


The must see time lapse video below courtesy of Stone McCarthy shows the distribution across the entire curve of the US marketable debt, as it was held by either the Fed, or the private sector over the past three unconventional monetary policy programs: starting in 2003 and concluding yesterday. In one short minute, this clip demonstrates very vividly how the Fed effectively took over the US bond market.

Some things to note:

  • The reason why the Fed no longer holds any debt with a maturity under ~3 years is because of the "ZIRP through late-2014" language which means there is no point for the Fed to hold that debt. For all intents and purposes it is the equivalent of cash. Debt maturing between now and 2014 amounts to just under $5 trillion.  Which means the Fed only has about $5.5 trillion in marketable debt with a maturity over 3 years to work with, and already owns about a third of it. It also means that as all the Fed's holdings in the under 3 year category are sold, Twist will have to be extended, and with it the ZIRP language to beyond 3 years - most likely 5 or so.
  • What is very visible is how the Fed had no choice but to expand its SOMA limit holdings per CUSIP from 35% to 70%. Soon, once the Fed owns 70% of every longer-dated Cusip, it will have no choice but to again extend the maximum permitted holdings, this time to 100% as it gradually become the entire market.

If after watching this clip anyone still believes that the biggest bond market in the world resembles anything even close to fair and efficient or which would have clearing prices anywhere near to where they transact now, they may want to double down on the FaceBook IPO allocation now.

Initial marketable debt distribution by holders starting back in2003 when the first Fed monetary policy started:

And most recent.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 08/16/2012 - 19:54 | 2712681 Dalago
Dalago's picture

Sooooo... you're fuck because the biggest hedge fund (the Fed) owns the USD.  That's what I got.

Thu, 08/16/2012 - 19:59 | 2712694 Future Tense
Future Tense's picture

Soon the market will overpower the fed in both the treasury and mortgage market. When that happens it's lights out for the real estate "recovery." Good look here at the trouble coming in the real estate market no one is talking about - demand.

Thu, 08/16/2012 - 20:14 | 2712726 notbot
notbot's picture

How do you overpower a printing press, Future Tense?

So ironic that Bernanke lectures Congress on fiscal sanity, then completely enables fiscal insanity by funding with Ctrl+P.

Thu, 08/16/2012 - 20:20 | 2712762 LMAOLORI
LMAOLORI's picture



Glad you pointed that out his lecture was a joke you would think they water boarded him and made him print.


So if we have to bail out the bond market's again how would that work?  Something along the line of Japan buying more of our debt?

Thu, 08/16/2012 - 20:34 | 2712795 I think I need ...
I think I need to buy a gun's picture

oh god


so what happens tomorrow if the program ended today? What replaces it and when?

Thu, 08/16/2012 - 20:50 | 2712833 sunaJ
sunaJ's picture

Congratulations, FED, you own the bond market!

Tell them what they've won, Jonny!

Well, Ron, as the money is conjured out of thin air to buy previously held debt, eventually the currency will not be accepted for trade anymore.  When that happens, just watch all of those dollars fall down upon the American people.  Congratulations, America!  Stay tuned for our next episode when America takes on China and the fiscal cliff in a real roshambo.  Good night!

Thu, 08/16/2012 - 21:09 | 2712877 economics9698
economics9698's picture

China caught on to the game.  It ends when one of the PIIGS breaks out or china goes gold.

Thu, 08/16/2012 - 21:34 | 2712930 nmewn
nmewn's picture

Dead on where's my debt binky, I need some unsustainable comfort.

Thu, 08/16/2012 - 23:12 | 2713148 The Monkey
The Monkey's picture

If the Fed had effectively taken over the bond market, 30 year treasury yields would not have moved from 330 basis points to 480 basis points during QE2. The Fed argues that real rates went down, but that's not exactly true - no one expected nominal yields to rise so far.

Let them do it again; this time expecting that long duration purchases will nail down the long end of the curve.

Bernanke - you do not control the rate curve. Raise nominal rates (even if real rates fall), and you will not only kill the US economy, secondary effects mean there will be hell to pay, and a lot less credibility for the Fed.

I have no vested interest. Go ahead and print.

Fri, 08/17/2012 - 07:20 | 2713561 Its_the_economy...
Its_the_economy_stupid's picture

Thanks for the Muni Bond link!

Sat, 08/18/2012 - 08:54 | 2716360 LMAOLORI
LMAOLORI's picture



Your welcome I hope people are paying attention RED ALERT: IT'S OPEN SEASON ON ALL CUSTOMER FUNDS

Thu, 08/16/2012 - 23:31 | 2713178 The Monkey
The Monkey's picture

Japan is much smarter than that. They will continue to sell long treasuries as required by the hyperinflation comittee.

Japan is shrewd - first to buy, first to sell.

Fri, 08/17/2012 - 07:10 | 2713544 youngman
youngman's picture

"How do you overpower a printing press, Future Tense?"

FAITH...when the fiat paper loses the faith.....that is how it is overcome....

Fri, 08/17/2012 - 04:37 | 2713451 MillionDollarBoner_
MillionDollarBoner_'s picture

"the market"

What's one of those then? I thought they were extinct...

Thu, 08/16/2012 - 22:06 | 2712998 Dingleberry
Dingleberry's picture

What this chart shows is that there is no such thing as a "bond vigilante" when it comes to the reserve currency of the world. 


Goldbugs are the new "vigilante".....

Thu, 08/16/2012 - 22:45 | 2713092 LongBalls
LongBalls's picture

True dat. With China net sellers of UST's and buyers of gold. You have just identified enemy number one. You just need to pull back the Iranian curtain to see it.

Thu, 08/16/2012 - 19:52 | 2712682 runlevel
runlevel's picture

holy shit

Thu, 08/16/2012 - 20:14 | 2712731 ACP
ACP's picture

Yeah, looks kinda like one of those simulations you see where a virus attacks the US in some fictional movie.

But this is not fiction.

Edit: This needs some dramatic music to emphasize when the Fed "infected" the market.

Thu, 08/16/2012 - 21:38 | 2712939 fuu
fuu's picture

Here you go, very rough.

Thu, 08/16/2012 - 22:03 | 2712988 donsluck
donsluck's picture


Thu, 08/16/2012 - 23:20 | 2713156 ACP
ACP's picture

Damn good rought draft! +1!

Thu, 08/16/2012 - 21:19 | 2712892 Cognitive Dissonance
Cognitive Dissonance's picture

Ben - "All your Treasuries are belong to us."

Thu, 08/16/2012 - 19:56 | 2712690 fonzannoon
fonzannoon's picture

No no no LIBOR bad THIS good!

Six minute Abs! Step into my office cause you're fuckin fired!

Thu, 08/16/2012 - 19:57 | 2712691 TheSilverJournal
TheSilverJournal's picture

The debt is unpayable and the only thing holding this boat together is ultra low rates. The US is much worse of than Europe.

Thu, 08/16/2012 - 19:58 | 2712696 Dalago
Dalago's picture

"the only thing holding this boat together is ultra low rates."  AND perception.

Thu, 08/16/2012 - 20:03 | 2712706 IrishSamurai
IrishSamurai's picture


"Animal spirits"  ... eventually to be replaced with "Animal Carcuses"

The SSN isn't buy 175K hollow points to ship to Grandma and Grandpa for self-defense purposes ...

Thu, 08/16/2012 - 20:30 | 2712785 BooMushroom
BooMushroom's picture

Six hundred rounds per special agent. And these are NOT for punching holes in paper targets.

Thu, 08/16/2012 - 23:03 | 2713101 LongBalls
LongBalls's picture

SSA to stop issuing paper checks too. So, even if you go to the office and get through to demand your money they can't do anything for you except offer a bite of the hot .40. At least it's hollow point so you might get a full sensation as it expands in your stomach?

Thu, 08/16/2012 - 19:59 | 2712695 NotApplicable
NotApplicable's picture

Once again, the mythical bond vigilante is proven extinct.

Thu, 08/16/2012 - 20:16 | 2712716 Dr. Engali
Dr. Engali's picture

The bond vigilante is working it's way up the debt chain. First Ireland, Greece, and Portugal. Followed by Spain , Italy , and France. Eventually they will make it here. Death by 1000 cuts.

Thu, 08/16/2012 - 21:33 | 2712928 NotApplicable
NotApplicable's picture

I don't consider insider predators to be vigalantees. They are all part and parcel of the system and are paramount in engineering its controlled collapse.

Thu, 08/16/2012 - 22:05 | 2712993 donsluck
donsluck's picture

Predators? Jealous are we? You too can participate, but you have to get into bed with a futures brokerage...

Thu, 08/16/2012 - 19:59 | 2712697 ThunderingTurd
ThunderingTurd's picture

That's nuts.  There in lies the reason long-term rates at significantly higher levels WILL NOT HAPPEN.  

Thu, 08/16/2012 - 21:47 | 2712959 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Once you enter, you never leave (the merry old land of ZIRP).

Kyle Bass' contention from a few years back (quite precient) if you ask me.

Thu, 08/16/2012 - 20:01 | 2712701 IrishSamurai
IrishSamurai's picture

In other news .... water is wet.

How this is shocking to anyone who reads Zerohedge the past 4+ years is beyond me?

The Bernank's entire thesis is on how he can use neo-keynesian logic to keep the economy afloat forever.

My only question to Ben (and the other satanists at the FED) is:

Does your HP printer come with a "PRINT FOOD", "PRINT ENERGY", and a "PRINT WEAPONS" button?

Because eventually the ponzi will be up and you and your friends won't be able to baffle the world with Bennie Bucks ...

Thu, 08/16/2012 - 20:03 | 2712710 ThunderingTurd
ThunderingTurd's picture

Not that it is "shocking" more fascinated with the illustration.  It's like when my 2 year old sees a train.  He has seen a train before, but each time he is blown away.

Thu, 08/16/2012 - 20:10 | 2712730 IrishSamurai
IrishSamurai's picture


Reading Zerohedge day in and day out (... and having a degree in Economics) ... its become pretty obvious that "All the world's a stage ... " ... so my cynicism meter is off the charts today.

Have known since 2007 when Paulson got his "bazooka" what the "plan" was.  Just didn't think they'd be able to keep the ponzi going this long and when many doomers here (and elsewhere) were saying that the bond market would eventually stop the game ... I'd just laugh and say "... That's not how The Merchant of Venice goes ... Shylock never gets his pound of flesh from Portia (the judge) .... aren't you guys read at all?"




Thu, 08/16/2012 - 20:18 | 2712759 ThunderingTurd
ThunderingTurd's picture

I am also amazed it has lasted this long; which leads me to believe it will go on longer than anyone can predict.  I am also astonished by the lack of interest in people that are in my generation (25-40).  It is going to be an epic 'dear in a headlight' face by the entire population.  

Thu, 08/16/2012 - 20:34 | 2712796 IrishSamurai
IrishSamurai's picture

Yeah.  38 here and 98% of our generational peers are clueless.

Most couldn't explain all the steps of how bread gets to the supermarket.


5 short years ago

Me: Explain the process of bread getting to the supermarket.

My Wife (37):  I go to the store and I buy it.

Me:  How did it get there?

My Wife (37):  Its just there.  I go to the store and I buy it.

Me:  So the Starship Enterprise just beamed a new loaf of bread from their ship to the store so that you could purchase it?

My Wife (37):  No stupid.  A farmer grows wheat and distributes it ...

Me:  How does the farmer distribute it?  The Starship Enterprise beams it for him?

My Wife (37):  You're just being an asshole ... you know he has to drive it to bread maker or have someone pick it up ...


After about 100+ of these conversations, my wife is now a libertarian who wants to get a farm and get off the grid ... she used to be a flaming environmentalist who was going to save the dolphins by ending oil subsidies ...

Just not sure we have enough time to get this out to enough of the retards ...

Maybe the Best Buy guy could make a video with those comic characters and get another 50+ million views to educate our nation on "How Stuff Really Works" ... not that neo-liberal bullshit website "How Stuff Works" (as sponsored by the State apparitik) ...


/Yes, I realize this post just got me on a list.  You're welcome.  Screw you and your drones.

Thu, 08/16/2012 - 21:20 | 2712898 dogbreath
dogbreath's picture

what do you call that routine,  fun with dick and jane??  sound like you are a patient man.  Environmentalist travel in packs so what happened to all her friends.

Thu, 08/16/2012 - 22:07 | 2713003 donsluck
donsluck's picture

All smart people travel in packs.

Fri, 08/17/2012 - 09:46 | 2713895 dogbreath
dogbreath's picture

clever but no.  

Thu, 08/16/2012 - 21:50 | 2712965 MiltonFriedmans...
MiltonFriedmansNightmare's picture

I'm 53, and you can say the same thing about my generation.

I would estimate that 99% of the population is clueless. If you don't read ZH, you're most likely in the dark.

Thu, 08/16/2012 - 22:38 | 2713073 CrashisOptimistic
CrashisOptimistic's picture

Guys, it does have an endpoint, and it is largely predictable.

Good, I have your attention.  


Item 1: Money was invented conceptually.  It doesn't exist in nature.  This matters because TPTB can control things that are nothing more than conceptual.

Item 2: Oil was not invented conceptually.  It has been there before mankind and some few drops of it will still be there after its scarcity kills off most of mankind.

THAT is the predictible endpoint.  Someone who needs oil to ship food to his cities is going to get outbid.  He's not going to get oil to feed his cities.  

He's not going to tolerate that.

He'll have a choice.  "Take" it from a neighbor who has it, or do the next best thing.  Kill off his neighbor who is burning oil and then there will be enough left that his next bid wins some.

Bottom Line: Money is conceptual and it won't be the cause of the end of anything.  Things conceptual can be redefined.  But food is not conceptual and it gets to the shelves via oil.  You'll know it's time to start walking to your survival point when you hear about oil wars fought NOT to secure supply, but to suppress consumption. 



Thu, 08/16/2012 - 23:48 | 2713208 Flakmeister
Flakmeister's picture

Old School, bitchez

Thu, 08/16/2012 - 21:24 | 2712906 ArkansasAngie
ArkansasAngie's picture

The fact is that TPTB will do everything in their power to remain in power.  Thus ... it will go on till they no longer have the ability to do anything more. 

And it will go out with a big bang.  It's under control until it isn't.

Gee whiz ... I am very tired of this.

Thu, 08/16/2012 - 21:53 | 2712972 MiltonFriedmans...
MiltonFriedmansNightmare's picture


There will be a black swan. When it appears, things get real in a hurry.

One morning when you awaken, the financial markets will be closed and the world in a state of panic. That's how I see it unfolding anyway.

Thu, 08/16/2012 - 21:13 | 2712879 EmmittFitzhume
EmmittFitzhume's picture

It will go on for as long as everyone is looking.  When there is another distraction, all the ruling class fucks, will quickly get out.  When the rest of the world turns back around it all be over.

Thu, 08/16/2012 - 21:15 | 2712887 fonzannoon
fonzannoon's picture

"They're Afghani freedom fighters! They're on our side! WE'RE AMERICANS!"

 - Austin Millbarge

Thu, 08/16/2012 - 20:14 | 2712740 Crimedog
Crimedog's picture

Does your HP printer come with a "PRINT FOOD", "PRINT ENERGY", and a "PRINT WEAPONS" button?


3D printers FTW!!

Thu, 08/16/2012 - 20:17 | 2712751 IrishSamurai
IrishSamurai's picture

Yeah.  3D printers are part of the NEW NEW Web 3.0 economy that is going to save us from our food, energy, and civil unrest problems that are coming in less than 4 years ...

I can get you in on the ground floor for a hot IPO that will lose 60% of its value before you're eligible to divest ...

Anyone interested?  Call 555-484...

Thu, 08/16/2012 - 20:31 | 2712789 Crimedog
Crimedog's picture

I was just saying that in jest, but if you want to actually argue about it...


3D printers have nothing to do with "the NEW NEW Web 3.0 economy".  They make real, tangible goods.  Now, it's not going to help with food or energy, but it can definitely help with manufacturing.  Think about it.  At some point in the near future, we will be able to cheaply manufacture car parts, tools, prefab materials, guns, etc. - really anything the previously required metal or some other strong material.  Throw in the fact that you completely take the labor costs out of the equation, and we have the chance to completely undercut all those countries whose goods we import due to the low cost from their cheap labor.  We can turn into an exporter of goods.



Thu, 08/16/2012 - 20:37 | 2712804 IrishSamurai
IrishSamurai's picture

My response was entirely in jest ... I'm very aware of the nano technologies that exist for potential manufactured goods.

Its why the Bernanke said "Let them eat iPads" ... because they still haven't figured out how to make organic, edible materials with these devices ... except for maybe pink slime.

Thu, 08/16/2012 - 21:19 | 2712894 bookwurm
Fri, 08/17/2012 - 14:07 | 2714776 Banjo
Banjo's picture

Unless the other guys are using same or better 3D printers hooked up to their slave labor.

Games changed and it's a race to the bottom. Should have protected labor not raped it via slave labor outsourcing.

Enjoy :)

Thu, 08/16/2012 - 20:02 | 2712704 fonzannoon
fonzannoon's picture

Until the rest of the world seriously starts unloading their USD this will go on and on. Until those factory workers in China revolt hard and win this goes on. This is all about the dollar.

Thu, 08/16/2012 - 20:16 | 2712745 AUD
AUD's picture

I keep telling the Iranians at PressTV that, but they don't get it. So it looks as if they will go down in the storm of (US) steel whilst clutching at their US $. In fact US marines might be able to prise US $ from their cold dead fingers.

The spoils of war!


Thu, 08/16/2012 - 20:03 | 2712707 Dr. Engali
Dr. Engali's picture

So when Qe3 comes we should see a completely black screen, and when Qe4 comes they will have to add a new color for stocks and reits.

Thu, 08/16/2012 - 20:05 | 2712715 fonzannoon
fonzannoon's picture

Dr. Engali you are going to be right about Bernanke. If Romney wins you bet your ass he will remain in that seat,

Thu, 08/16/2012 - 20:15 | 2712744 Dr. Engali
Dr. Engali's picture

Well let's hope I'm right about QE. I have a ham sandwich riding on the Bernank. I don't know whether to be nervous about it or not as this market grinds higher. If the Bernank disappoints this market could cause some chaos into the election. I don't know if he wants that mess. On the other side if it he doesn't want to be seen as affecting the elections. I think he's in a box, the mutual funds will be looking to year end soon. September and October are going to be interesting.

Thu, 08/16/2012 - 20:19 | 2712756 fonzannoon
fonzannoon's picture

As long as he keeps promising he is never disappointing. That being said when his card is pulled I think this post that someone else put on here a while ago summarizes what they will do. Forgive me if you have seen it, but it's that good. Whoever this guy is should come out and take a bow.

"These fuckers are going to print hard enough to wake the dead. They'll print like mo'fos, print like mad men, print like fly pimps. Print until their eyes bleed.

They will print via the swaps, via bank bailouts and mergers, via fixed Treasury yields, via real honest-to-God negative interest rates, via loans to banks on no collateral, via payroll tax reductions, and in the end via actual fiat paper instruments which they might very well drop in bails from actual mutherfucking helicopters. They will not give two figs what anyone thinks. Here is why. Because this is the Goddamned end of it my friend. There is no accounting beyond this point. There will be no history of it. No one to take notes of rates of exchange, or of the graft and violence, nobody to worry about the deficit or the GDP or the national debt of any nation large or small under the blazing Goddamned sun. End. Of. It. Does anyone bitch about how Rome totally debased their coinage at the end? Hell no. But whoever did it had enough to hand and grabbed some land with a nice vineyard and sat back and waited for the Middle Ages to start 700 years further on. And that's what a singularity is about. Anything that passes through is striped of all meaning. Nothing we think is important now will remain so beyond the event horizon. Nobody will remember, nobody will write about it, nobody will be held to any standard. Ever for evar. So yeah, they'll print like the mad crazed terrorists they are. Because they have nothing to lose, and maybe something to gain. Maybe a dollar. Maybe a day. Maybe a slim chance to escape with some of the loot. Whatever the fuck advantage they see in it, for themselves and their elite crap wanking buddies, they will full-on-full-time-fucking do it to advantage. Watch for it, Dawg. It's totally on this time, on like Donkey Kong. And when the dust is settled in a generation hence it's going to have become another unbelievable episode among the ages of men."


Thu, 08/16/2012 - 20:24 | 2712768 Dr. Engali
Dr. Engali's picture

Damn good post. I didn't have the pleasure of reading the original . Thanks for sharing.

Thu, 08/16/2012 - 20:41 | 2712816 BooMushroom
Thu, 08/16/2012 - 20:47 | 2712828 fonzannoon
fonzannoon's picture

like i said i posted it once before. never took credit for it or tried to pawn it off as my own.

Thu, 08/16/2012 - 20:52 | 2712841 BooMushroom
BooMushroom's picture

You are correct, and I am embarrassed, and the damn edit button isn't working for me with this foot in my mouth.

Thu, 08/16/2012 - 20:59 | 2712856 fonzannoon
fonzannoon's picture

No sweat. I can't articulate thoughts the way that dude did.

Thu, 08/16/2012 - 21:06 | 2712869 Dr. Engali
Dr. Engali's picture

I hate when that happens. I've been there.

Thu, 08/16/2012 - 20:51 | 2712837 BooMushroom
BooMushroom's picture

And/or he got it from somewhere AWESOME that google can't find now.

Thu, 08/16/2012 - 20:55 | 2712847 fonzannoon
fonzannoon's picture

if that was original he deserves a zh award.

Thu, 08/16/2012 - 20:19 | 2712757 fonzannoon
fonzannoon's picture

dup sorry


Thu, 08/16/2012 - 20:03 | 2712709 fuu
fuu's picture

Where is China in that video?

Thu, 08/16/2012 - 20:17 | 2712750 Dr. Engali
Dr. Engali's picture

Selling bonds and buying hard assets.

Thu, 08/16/2012 - 20:06 | 2712719 TumblingDice
TumblingDice's picture

Is the fed going to hold all those notes to maturity? If they do, foreign holders might find solace that they are in the same boat as the Fed. On the other hand, the treasury doesn't need to pay interest on these bonds which might piss off these guys off.

However if this paper is bought and held to maturity then it inflates the price of treasuries, especially the long term ones, to the point where it drives away other purchasers. Thus, the artificially flat curve hinders traditional banking model (borrow short term, lend long term) and puts the fed in a situation of committement to the maintance of current high prices. The fed will not let rates rise and the financial sector will become cannibalistic and consolidate aggressively.

Thu, 08/16/2012 - 20:08 | 2712724 Clockwork Orange
Clockwork Orange's picture



Thu, 08/16/2012 - 20:15 | 2712735 Zola
Zola's picture

From free markets to communist central planning and fascism. QE2 really was the death knell where FED became more than 50pct in many maturities.

Thu, 08/16/2012 - 20:12 | 2712736 ebworthen
ebworthen's picture

So dear Larry Kudlow was arguing tonight that the U.S. 10 Year going from 1.3 something to 1.8 something was the sign of economic recovery.


Thu, 08/16/2012 - 20:37 | 2712802 Dr. Engali
Dr. Engali's picture

He's fucking insane. I wonder what he is going to say when the ten year goes sub one percent.

Thu, 08/16/2012 - 20:51 | 2712836 fonzannoon
fonzannoon's picture

insane is a compliment. he is evil.

Thu, 08/16/2012 - 21:15 | 2712885 bobert
bobert's picture

I sold a significant amount of PST when the ten year was @ 1.38% thinking as you do now. That was a month ago. Now here we are at 1.83%. I'm wanting to get paranoid.

Thu, 08/16/2012 - 21:23 | 2712901 fonzannoon
fonzannoon's picture

The problem I have with shorting treasuries is that the day you are really really right you will be on the complaint line behind the holders of slv etc. as you read on your cell phone that the ceo of your brokerage firm just tried to cut his wrists with a butter knife and JPM has your segregated money. Luckily the CEO will be okay.

Thu, 08/16/2012 - 21:36 | 2712936 Dr. Engali
Dr. Engali's picture

With this temporary sell off in treasuries I'm even more certain we will go sub one percent. The next deflationary event will be enough to get it there.

Thu, 08/16/2012 - 22:18 | 2713034 bobert
bobert's picture

Perhaps you are correct Doc.

I'll stay out of this match for now and watch.

Thu, 08/16/2012 - 20:54 | 2712846 BooMushroom
BooMushroom's picture

Just wait until it reverts to the mean. We'll be in utopia then!~

Thu, 08/16/2012 - 20:14 | 2712739 fonzannoon
fonzannoon's picture

Has anyone out ther heard Romney trashing Bernanke? How about this tea party conservative Ryan? Has he thrown Bernanke to the wolves yet? Bernanke is staying put no matter who is in there.

Thu, 08/16/2012 - 20:57 | 2712823 Everybodys All ...
Everybodys All American's picture

Romney has said he would replace Bernanke several times. Whether he does or not who knows. The problem that I see is that there is virtually no one in the Fed system including regional governors who thinks or acts any differently than Bernanke. They are totally void of different theory. So it will not matter because they are all virtually clones of Bernanke. Our whole economic system is following the Japan model.

I still at this time don't see a new QE3 announced but remember most of the recent QE in play now is stealth and unannounced anyway. Dollar Swaps, PPT, IMF funding, etc.

BTW Bernanke will go down in history as the guy who destroyed the American dream and to think he made the cover of Time.

Thu, 08/16/2012 - 21:03 | 2712865 BooMushroom
BooMushroom's picture

This is how liberty dies ... with thunderous applause. And cover shots on Time Magazine.

Can Romney appoint Ron Paul as head of the Fed? Not will, but can?

Thu, 08/16/2012 - 20:45 | 2712825 Dr. Engali
Dr. Engali's picture

Have you heard Romney or Ryan challenging anything ? Why aren't the outraged about Corzine or fast and furious? Because the red team is just a distraction as one of the two "official" choices for president. They don't really want to win and they are part of the club.

Thu, 08/16/2012 - 20:56 | 2712843 Everybodys All ...
Everybodys All American's picture

I'd like the media to do their job. That's not going to happen and unfortunately it looks like justice will not be served by any judicial system that involves Holder.

Thu, 08/16/2012 - 20:19 | 2712749 LawsofPhysics
LawsofPhysics's picture

I guess the real question one should be asking is "does the Fed really expect to be paid back?"


hedge accordingly, these guys are pretty good at taking it out of humanity's ass.  If they can't actually get your money (PMs) they have a bad habit of killing a lot of people.

Thu, 08/16/2012 - 20:18 | 2712754 The Axe
The Axe's picture

No matter How BIG  How POWERFUL    when your positions are know   when your positons are wrong   when you think you are the balls    when you think you can out trade the market      you will LOSE!!!!!!!!    The bond guys will have thier DAY   they will shake the roof   they will bring Ben to his knees,,,  he thinks to much of his position in life and his power   only a small move in rates   will bring PAIN   its all     too much...pain is coming

Thu, 08/16/2012 - 20:28 | 2712779 fonzannoon
fonzannoon's picture

This trade goes beyond the markets. This trade extends to factories in Asia and to Kingdoms in Saudia Arabia. Wars will be fought to keep this trade in the money.

Thu, 08/16/2012 - 20:38 | 2712807 vast-dom
vast-dom's picture

i agree. the fed can print and ZIRP but if the bond guys dump suddenly the bubble could certainly pop, since even the printing press can't fill up all market plunges all at once. think how interesting today is: we have record SP levels and yet everyone is admitting there is trouble and awaiting the vital QE fix -- so let's say there's more and more QE and markets rise more and more and let's say with trickle 5% of our population benefits while inflation kicks in -- what is the endgame? how can anyone, even a keynesian, rationalize this? they can't. they know they are not kicking a can. they know they are not solving anything. they are running the ultimate ponzi the likes of which the world has never seen before on the backs of taxpayers, chinese, and every other country on this fucked up rock. PONZI PLANET cannot continue forever. that is a fact.

Thu, 08/16/2012 - 20:25 | 2712771 monopoly
monopoly's picture

Hard to even comprehend. 

Thu, 08/16/2012 - 20:28 | 2712780 catch edge ghost
catch edge ghost's picture

'Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.'

- B. Bernanke

Thu, 08/16/2012 - 20:59 | 2712858 tok1
tok1's picture

I think key point is the govt has two choices
1) no central bank and the govt expands/ contracts
the money supply itself ( usually by spending more than it recieves)
or 2) the current method where the govt has an independent
(suppose to be) central bank that increases/ decreases the money supply

If the govt issues debt and the fed does not buy or finance it
the the funds must come from somewhere else ( ie private sector)

If the govt issues debt and the fed buys it then the
money supply expands .

So the fed can set the level of rates by buying as much as they like
but they cannot control the currency at the same time.

So they can either control rates ( like now ) and have currency / inflation risk
or they can fix the currency ( like old gold standard) in which case they
will lose control of rate. But they cannot control both ( ie rates / and currency)

Thu, 08/16/2012 - 21:00 | 2712859 cebri88
cebri88's picture

"Get to work Mr.Chairman"

Thu, 08/16/2012 - 21:20 | 2712896 Monedas
Monedas's picture

"An iron curtain is descending across the bond market !"....Monedas     1929       Comedy Jihad Senior Staff Hoarder

Thu, 08/16/2012 - 21:26 | 2712911 DannyTX
DannyTX's picture

I bet Santelli would get on a tear about that one!

Thu, 08/16/2012 - 21:26 | 2712913 uninspired
uninspired's picture

so, bulish?

Thu, 08/16/2012 - 22:26 | 2713053 HurricaneSeason
HurricaneSeason's picture

No, bulshi!

Thu, 08/16/2012 - 21:55 | 2712974 dolph9
dolph9's picture

Ask me what to do, and I will have both no answers and a million answers.

Ask me what not to do, and I have one answer...don't buy bonds.

Thu, 08/16/2012 - 22:19 | 2713040 babylon15
babylon15's picture

People say this, but it's not that simple.  The Fed is positioned to profit from a stock market crash.  Leveraged 50 to 1 long bonds, they would make enormous profits if stocks crashed today, and they could use those profits to pay down the debt.  Look at what happened when the USA was downgraded, the 10-year went from 3% to 2% (the value of the Fed's portfolio went up) and stocks went down 25%.  Now imagine how much real purchasing power the Fed could confiscate by letting markets slide 90% like in the Depression.  That's a lot of money...

Thu, 08/16/2012 - 22:08 | 2713004 babylon15
babylon15's picture

One of the best ZH articles in a while.

Thu, 08/16/2012 - 22:33 | 2713066 ekm
ekm's picture



Are we still talking about the Whale? Oh, no.

This is a Mob of Whales, we're seeing here, that's the FED.

Everything is going towards buy, buy, buy and buy. Who are they going to sell to?

Thu, 08/16/2012 - 22:44 | 2713089 vertexa
vertexa's picture

This market is so scary, for the whole day, I noticed that there is no seller at all (or very few). Everyone is so bullish buying stocks. I think the higher the market go up the sooner it will crash. everyone is trading regardless of any news (both bad or good)

Thu, 08/16/2012 - 22:49 | 2713103 bankruptcylawyer
bankruptcylawyer's picture


Thu, 08/16/2012 - 23:07 | 2713135 Ancaeus
Ancaeus's picture

Pardon me, but that 8/15 graph (> 3 years) does not look like 1/3 Fed to me.  Just draw a line across at 30% Fed, and see what fraction of it (again, > 3 years) intersects black.  To my eye that fraction looks to be a lot less than 50%.   In other words, for less than half of the maturities, the Fed owns more than 30%.  I think that a better estimate of the fraction of that graph (> 3 years) that is black is 20%.

Now look at the 7/9/2003 graph.  It starts out (short maturity) at about 28% Fed.  The percentage gradually declines with increasing maturity to just under 20%.  (At the very end it dips to near zero).  The graph is much less "noisy" than the 8/15 graph, but if anything, the area that is black in the 7/9/2003 graph is greater.   That is, for a typical maturity, on average, the Fed owned more of it in 2003 than in 2012.

There is another questionable feature of the argument based on these graphs.  It is arguable that what really matters (if it *does* matter) is the fraction of Treasury bond dollar face value outstanding that is owned by the Fed.  But, for each of the maturities (in both graphs) we don't know the total face value of the bonds.  If this amount is approximately a constant (which is implausible), then we can use the per-maturity percent as a proxy for the relative amounts owned by the Fed and the public.  But, if the face value amount of bonds also has large excursions, then this is simply wrong. 

That argument is wrong, unless you can claim that the Fed and the Treasury have acted independently, so that the two noisy sequences are uncorrelated.  BUT, that is precisely the point raised in this posting -- that the Fed and the Treasury are not independent.  Thus we can expect the issuance of bonds and the uptake of those bonds by the Fed to be highly correlated because they are, in fact coordinated!

Thu, 08/16/2012 - 23:23 | 2713166 brace_brace_brace
brace_brace_brace's picture

Why does it matter what the total face value is when the graph clearly states percentage of all bonds? The graph unit is percentage not dollars.

Fri, 08/17/2012 - 00:01 | 2713225 Flakmeister
Flakmeister's picture

Another issue is the binning of the data. The 2012 is more more finely sampled...

The best way to make a comparison is using indentical x-axis and bin sizes..

Fri, 08/17/2012 - 00:57 | 2713293 Ancaeus
Ancaeus's picture

May I give you an example of why it matters?  Suppose there are only two different maturities (to make this simple) m1 and m2.  Suppose that the Fed owns 100% of m1, and 0% of m2.  A person might be led to believe, based on that "graph" that the Fed owns half of the Treasury market. 

But wait!  Suppose that the total face value of bonds with maturity m1 is $1000, while the total face value of bonds at m2 is $1,000,000.  So, in this example, the Fed owns $1000 of bonds in a total market of $1,001,000.  I.e., they own about a tenth of a percent of the whole market.

So, in this example, without knowning the total face value at each maturity, the graph by itself gives you the wrong answer concerning the dominance of the Fed in the Treasury bond market.

Please notice that I am not saying that the fraction owned by the Fed is definitely less than portrayed by the posted graph.  The graph could actually mislead you to find a lower percentage of Fed ownershiip than reality.   (Just change the Fed ownership in the above example to be 100% of m2 and 0% of m1, and you get that kind of result.)

What I don't understand is, why it matters what fraction of Treasury bonds is owned by the Fed.  Consider this: The bonds owned by the Fed are out of circulation.  Those bonds do not affect supply and demand for ordinary bond purchasers.  A bond buyer (to a reasonable approximation) can only tap the supply of privately held bonds. Thus, it is the adequacy of that privately held supply, relative to demand, that determines bond prices.  The bonds owned by the Fed are irrelevant to this process. 

Now, what about the prices of newly issued bonds?  Those prices, determined at auction, are driven by the price expectations of buyers -- expectations that have been formed by observing the recent traded prices.  And, let me emphasize, all of those transactions are governed by the adequacy of the privately held supply relative to demand.

I could be mistaken, but this seems to me a compelling argument that the fraction of Treasury bond owned by the Fed is irrelevant to the bond market.  If you think that the Fed-owned fraction does matter, then please explain why.  In particular, what is the mechanism by which the market becomes sensitive to the sequestered Fed-owned bonds?  Which of my assumptions is wrong?

Fri, 08/17/2012 - 01:29 | 2713312 ekm
ekm's picture

Arithmetic answer to you:

There's too, too much money chasing too few bonds in circulation. People feel "safe" by owning US bonds even at the cost of a slight real negative rate, kind of "safe collateral".

If the Fed or any private entity owns and holds US bonds, there are less bonds in the market, chases by a humangeous SHADOW BANKING money.

In ordinary language is called HOARDING; I call it WAREHOUSING.

Fri, 08/17/2012 - 11:33 | 2714222 brace_brace_brace
brace_brace_brace's picture


Thu, 08/16/2012 - 23:31 | 2713179 JohnG
JohnG's picture

Think of it in terms of flow, and you'll get it.  Fed has no other option if they want to exist as a going concern.  This will end badly.

Fri, 08/17/2012 - 09:13 | 2713775 bobert
bobert's picture

You are an independent thinker.


That' a good thing we need more of that here.


I didn't follow the reasoning ot the article related to the graphs either. I was rather much unimpressed by the graphics.


Pictures apparently mean different things to different people.  .

Thu, 08/16/2012 - 23:28 | 2713173 JohnG
JohnG's picture

Disaster coming.  Run.

Gold Bitchezz!!

Fri, 08/17/2012 - 02:48 | 2713367 Kaikoura
Kaikoura's picture

Anyone realize the Hindenburg Omen was triggered recently? read more here:


Fri, 08/17/2012 - 06:09 | 2713500 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Ok. So the FED's actions have nothing to do with the economy, if by economy we refer to the people living within it, jobs, life etc.

The FED is simply an extension of Treasury and Treasury an extension of the military industrial complex. It's purview is global, perhaps galactic.

As such, the FED's job is to monetize the debt and it's reach includes all of those USDs overseas, for the most part Asian.

This is not political nor economic, it is existential.

The moral to the story is, you can borrow those dollars, but you never really owned them, did you.

It's one simple approach to global rebalancing, a repartee to Asia's mercantilist doubling down after 98.

The jobs may have gone to Asia along with the dollars, but now we want them back (the dollars). As for the jobs, well, that does not seem to have been figured into the equation as of yet.



Fri, 08/17/2012 - 07:55 | 2713606 madcows
madcows's picture

I'm thinking the FED is going to be REALLY upset when the Government defaults.

Fri, 08/17/2012 - 15:38 | 2715064 Seize Mars
Seize Mars's picture

It's all just fine. It'll be fine.

YYYAAAAAAAHHHHHHHHHH (jumps out of window)

Fri, 08/17/2012 - 16:40 | 2715307 Totentänzerlied
Totentänzerlied's picture

But they're "not monetizing the debt" right guys? Right? RIGHT?

But seriously, this shit can continue longer than most want to believe is possible. Another intense, but not suprising, wake-up call in a long, long chain of them.

Do NOT follow this link or you will be banned from the site!