Indirect Monetization by the Fed, Apparently

[jacobdcoates]

This a link for Zerohedge http://www.zerohedge.com/article/fed...scheme-exposed.


Apparently the Fed is relieving the Primary Dealers of their UST's almost immediately, in addition to the the 300 billion that they said they would buy outright. Things look worse and worse. I can't imagine that this ends well, but then again most people call me a pessimist.

[Mega]

Re: Indirect Monetization by the Fed, Apparently

I hate to go all "Alex Jones" on you............BUT, You notice that "They" are planning a "Swine Flu lockdown" in Oct ish.
Mike

[globaleconomicollaps]

Re: Indirect Monetization by the Fed, Apparently

I hate to go all "Alex Jones" on you............BUT, You notice that "They" are planning a "Swine Flu lockdown" in Oct ish.
Mike

tinfoil is unwelcome in the department. do you have evidence?

[*T*]

Re: Indirect Monetization by the Fed, Apparently

Accross the Curve:

Monetizing the Debt: Disinformation in the Blogosphere

I am not sure where to begin here. A blogger named Chris Martenson wrote a story which alleges that the Federal Reserve System is secretly monetizing the debt. The Zero Hedge Blog links to the story and describes it as a phenomenal piece of investigative reporting. The story also received coverage at the high profile left wing/progressive blog the DailyKos. The author there was nearly apoplectic.

The story is that the Federal Reserve in its Open Market Desk intervention today purchased $4,750,000 of the recently issued 7 year note.

The principal reason for the Open Market Desk’s purchase of so much of just one issue is simple and uncomplicated and it is not part of some Byzantine conspiracy. The Federal Reserve responds to that which the dealer community offers to them. Since the 7 year note was just auctioned the street would own far more of that issue in the narrow sector in which the Open Market Desk was operating today than of surrounding issues.

So to complete the operation quickly and cost effectively, they would opt to buy that issue. Pretty neat and surgical and quick.

& some good conversation in the comments section

[WildspitzE]

Re: Indirect Monetization by the Fed, Apparently

Fred: Can we consolitade all of these threads? (Fed purchases through primary dealers to circumvent the rule about not buying directly from the Treasury).

Thanks.

[vinoveri]

Re: Indirect Monetization by the Fed, Apparently

This a link for Zerohedge http://www.zerohedge.com/article/fed...scheme-exposed.


Apparently the Fed is relieving the Primary Dealers of their UST's almost immediately, in addition to the the 300 billion that they said they would buy outright. Things look worse and worse. I can't imagine that this ends well, but then again most people call me a pessimist.

And this is why it can all return to "normal", equities up, new bubbles, hamsters on treadmills, dow at 20k by 2012 AND the Feds balance sheet at $5trillion, U.S. debt at $20 Trillion.
If the Fed can take its balance sheet from $1T to $2T, in can go to $3T .. and then $4T ...
Nobody that "matters" cares or will do anything about it. Global coordinated gov policy responses (e.g., "resolved: we'll all print money and pour it into the system together"). Human greed, enabled by "free money" will get us all out of this "slowdown in growth"

Back to the normal ... asset prices rapidly inflating ... commodity prices eventually inflating (like in 2007-08) ... until it crashes again ... but that might be in 5 or 10 years.

I'd be delighted and grateful if someone could explain why this is not likely (w/o referencing the "bond vigilantes" .. who are impotent if they even exist ... and w/o referring to how gov borrowing crowds out the private sector - which is true only if there is a limit to what can be borrowed, but as it appears to me, there is no limit ...in a fiat currency world)

[bradzepfan]

Re: Indirect Monetization by the Fed, Apparently

tinfoil is unwelcome in the department. do you have evidence?

Oh boy, here we go. Off Topic in a huge way, but the "tin foil hat" comment always pisses me off.

Does this constitute "proof" enough?

http://www.youtube.com/watch?v=tM1wNsrmbaA

Edit: by the way, if you wait for the kind of "proof" that satisfies most complacent/naive people, the situation can be most dire and "too late". How's that for "tin foil hat"????

[D-Mack]

Re: Indirect Monetization by the Fed, Apparently

I hate to go all "Alex Jones" on you............BUT, You notice that "They" are planning a "Swine Flu lockdown" in Oct ish.
Mike

Oh boy, here we go. Off Topic in a huge way, but the "tin foil hat" comment always pisses me off.

Does this constitute "proof" enough?

http://www.youtube.com/watch?v=tM1wNsrmbaA

We know what they want

"You don't get everything you want. A dictatorship would be a lot easier." Describing what it's like to be governor of Texas.
(Governing Magazine 7/98)

-- From Paul Begala's "Is Our Children Learning?"

"I told all four that there are going to be some times where we don't agree with each other, but that's OK. If this were a dictatorship, it would be a heck of a lot easier, just so long as I'm the dictator," Bush joked.

-- CNN.com, December 18, 2000

"A dictatorship would be a heck of a lot easier, there's no question about it, " [Bush] said.

-- Business Week, July 30, 2001

Reminds me of the clergy response teams



To get back to the topic, the question is what will they do when they reach the 300 billion

"Lending" a Helping Hand
by Brian Benton | August 4, 2009

...

What happens when the $300 billion purchase program limit has been met? At the current rate of purchases, this will be sometime in early September. Will the Fed extend this program? A few possible outcomes ...

The Fed does not extend the program and the Treasury continues its schedule of longer dated auctions (monthly and in consistent amounts for the 7-year, 10-year, and 30-year treasuries). Here, longer dated treasuries will fall and yields will rise, sans some unexpected reversal of investor sentiment with respect to these securities. The impact on the economy and particularly the housing market will be significant.

The Fed does not extend the program and the Treasury cuts back on the volume of longer dated auctions, replacing them with securities of shorter duration. Here, the average maturity of outstanding Treasury debt will continue to decline, forcing the Treasury to roll over maturing debt more often. This is also much riskier for our economy in that investors will have more leverage over short term interest rates, which will also impact longer term interest rates over time.

The Fed extends the program. Regardless of what the Treasury does, this additional debt monetization will result in more bank reserves created by the Fed and all other things being equal, an increased monetary base. Also, at some point, investors will shun these securities in larger numbers, driving longer term interest rates higher.

http://financialsense.com/fsu/editorials/2009/0804.html

looks like you can't trust Ben to say the truth

[surfersdsb]

Re: Indirect Monetization by the Fed, Apparently

Direct proof of new Fed bond buyingThe Fed Buys Last Week's Treasury Notes

http://www.chrismartenson.com/blog/f...-auction/23880

Thursday, August 6, 2009, 12:11 pm, by cmartenson

I've started a new service for enrolled members called the Martenson Insider where I will be putting my more timely and market-sensitive thoughts. This week it is freely available to all.

Here's a recent example illustrating that the Fed's actions are more consistent with financial desperation than economic health.

In concert with the claims I made in the prior Martenson Insider post, The Fed bought $7 billion in Treasuries today and even more yesterday.

This is at the upper end of their recent range of already exceptional purchasing activity.

If things are so rosy that every single dip is being bought in the stock market with a vengeance, I wonder why these printing operations are really necessary?

This $14 billion plus buying activity by the Fed represents fresh money created out of this air that was exchanged for the sovereign debt of the US. However, since the Fed has, for all practical purposes, never undone its permanent operations (hey, that's why they are called "POMOs") we can consider these additions of money as good as permanent themselves.



.

Looking at the maturity range we can see that these are all long-dated bonds with the one today specifically offering us a tantalizing clue as to how the shell game is being played.

Here's the Treasury announcement for the 7-year auction that came out on July 30 (last Thursday). Please note the specific CUSIP number circled. Every bond in this auction carries this specific identifying number.





And now let's look at the detail for this most recent POMO:



Good grief! Just last week, when the auction results were announced it was trumpeted to great fanfare that there was "more than sufficient" bid-to-cover, "strong demand" and all the rest.

And now it turns out that 47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by the Fed and permanently secreted to its balance sheet.

They didn't even wait a full week! A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using "primary dealers" and "POMOs" and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public.

The speed of the shell game is accelerating.

This immediate repurchase of newly auction bonds by the Fed tells us that demand for these bonds is not nearly as high as advertised, and that things are not quite as strong as represented.

And oh, by the way, don't expect any stock market weakness while so many billions are being shoveled out the Fed and into the pockets of the primary dealers. They'll have to do something with all that freshly minted cash.....

[Starving Steve]

Re: Indirect Monetization by the Fed, Apparently

I blame Obama for letting Bernanke stay-on at the Federal Reserve Bank. I find it very very very difficult now to excuse this mistake.

Between Obama's energy plan based upon faith in windmills and solar power, and his economic plan based upon inflation destroying the dollar, I find it difficult to support Obama now.

Sure the Repukes are worse, but they are not much worse.:mad:

[doom&gloom]

Re: Indirect Monetization by the Fed, Apparently

Just wait till they install Larry Summers at the Fed -- you'll be begging for
ol' Heli-Ben to come back.

[Ghent12]

Re: Indirect Monetization by the Fed, Apparently

I blame Obama for letting Bernanke stay-on at the Federal Reserve Bank. I find it very very very difficult now to excuse this mistake.

Between Obama's energy plan based upon faith in windmills and solar power, and his economic plan based upon inflation destroying the dollar, I find it difficult to support Obama now.

Sure the Repukes are worse, but they are not much worse.:mad:

President Obama said he couldn't see how anybody, anybody, could do a better job than our boy Helicopter Ben.

I just saw a part of a C-SPAN segment that showed Ann Coulter. I can't really stand her, but she made an interesting point that if Repukes are swept into office in 2010, that might save President Obama by not allowing him to govern how he wants to, just like (as she claimed) the 1994 election that brought a major Republican majority saved the Clinton presidency.

Question is: what will be the pertinent economic and political fallout that transpires between January 2010 and November 2010 as a result of current and previous policies?

[D-Mack]

Re: Indirect Monetization by the Fed, Apparently

Fed Set to End Purchases, Two Former Governors Say (Update1)
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By Steve Matthews and Scott Lanman

Aug. 5 (Bloomberg) -- The Federal Reserve is set to halt its purchases of up to $300 billion in U.S. Treasuries in mid- September as scheduled, and will probably announce the decision next week, two former central bank governors said.

“They’re clearly not going to extend that program given the improvement in financial markets that’s going on,” said Lyle Gramley, senior economic adviser with New York-based Soleil Securities Corp. and a former governor.

....
http://www.bloombergnews.com/apps/ne...d=ayTqng4UbttM

I wouldn't be so sure

[blazespinnaker]

Re: Indirect Monetization by the Fed, Apparently

Is there any way to find out what the fed is paying for the USTs?

I wonder if the primary dealers are picking up the spread just for acting as obfuscators in these transactions.

Hmm.. no, the primary dealers lost on this transaction. Price dropped hard since July 30th ... price inverse to yield.

[blazespinnaker]

Re: Indirect Monetization by the Fed, Apparently

Ok, on second thought .. isn't this just a part of the feds 300B well announced plan to purchase treasuries?