bailout endgame: will treasurys crash due to Fed monetization?

[grapejelly]

I have long worried that what is coming up, is that the Fed will be the only one in the market to buy all these bonds that will be issued. This is the endgame in the whole financial crisis, the Fed monetizing all debt and the buyer of all resort.

Peter Schiff puts this very well:

Just as the U.S. government issues mountains of new debt to finance the multi-trillion annual deficits planned by the Obama Administration, speculative holders of existing debt will be offering their bonds for sale as well. In order to prevent a complete collapse in the bond prices the Fed will be forced to significantly increase its buying.

However, since the only way the Fed can buy bonds is by printing money, the more bonds they buy the more inflation they will create. As inflation diminishes the investment value of low-yielding Treasuries, such a scenario will kick off a downward spiral. But the more active the Fed becomes in their quest to prop up bond prices, the bigger the incentive to hit the Fed’s bid. The result will be that all Treasuries sold will be purchased by the Fed. But with the resulting frenzy in the Treasury market, and with inflation kicking into high gear, we can expect that demand for other debt classes that the Fed is not backstopping, such as corporate, municipal and agency debt, to fall through the floor, pushing up interest rates across the board.

In order to “save” the economy from these high rates the Fed will then have to expand its purchases to include all forms of debt. If that happens, run-away inflation will quickly turn into hyper-inflation, and our currency will be worthless and our economy left in ruins.

[phirang]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Peter Schiff is an idiot. Listen to him at your own peril.

[c1ue]

Re: bailout endgame: will treasurys crash due to Fed monetization?

GJ,

In general Peter is correct, but there are numerous possibilities Peter and the monetarists' don't take into account.

For example, they believe on the one hand that the US government and quasi-governmental institutions like the Fed will ignore their respective charters and create inflation in order to deflate debt.

However, if charters are being ignored, there are a lot of other ways this can happen besides just printing money.

For example: Dr. Michael Hudson had responded when asked how he would fix the situation we are in now.

He said that the US government could just nationalize all unemployed persons and put them to work rebuilding the next generation infrastructure.

In this case, no inflation because no money is involved.

[phirang]

Re: bailout endgame: will treasurys crash due to Fed monetization?

What about China swapping T's for cash and re'fi'ing the US economy and providing cheap FDI?

If the US goes down, those T's are worthless anyway, and so China is stuck.

[c1ue]

Re: bailout endgame: will treasurys crash due to Fed monetization?

The problem with swapping Treasuries for cash is - where is this cash coming from?

I assume China wouldn't accept printed cash

[we_are_toast]

Re: bailout endgame: will treasurys crash due to Fed monetization?

I have long worried that what is coming up, is that the Fed will be the only one in the market to buy all these bonds that will be issued. This is the endgame in the whole financial crisis, the Fed monetizing all debt and the buyer of all resort.

Just as the U.S. government issues mountains of new debt to finance the multi-trillion annual deficits planned by the Obama Administration, speculative holders of existing debt will be offering their bonds for sale as well. In order to prevent a complete collapse in the bond prices the Fed will be forced to significantly increase its buying.

I've been wondering about this also. Other nations wouldn't even have to dump their Tbills, if they just stop buying the Fed would have to step in. With world trade slowing, will other countries even have the dollars to continue buying at the same rate much less to cover the triple amounts the treasury needs to offer? What possible scenario would cover the sale of 1.3 trillion of new debt along with the rollover of old?

[Spartacus]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Bernanke will find a way (if he has not already) to buy treasuries

with segregated FED funds,
or special-series FED bonds,
or "deep, deep, DEEP storage" gold,
or with special, valuable tachyon-neutrino alloys (by the pound)
or with non-inflationary, monetized and sterilized nunsuches -

ways that don't excessively feed inflation.

That's been his entire game from Aug 2007 until now & there's no reason I can see for him to stop

I have long worried that what is coming up, is that the Fed will be the only one in the market to buy all these bonds that will be issued. This is the endgame in the whole financial crisis, the Fed monetizing all debt and the buyer of all resort.

Schiff seems to have been better than Mish on the deflation score, but he's not thinking outside the box[*] the way Bernanke is.

For a staid academic Bernanke is quite the improviser, quite the Wildman of Washington(R), (TM). I'm beginning to think he has a special, personal stash of Vancouver shrooms, bufo toads and Owlsley's best.
[*] god I hate typing that corporate droid speak

[ThePythonicCow]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Bernanke will find a way (if he has not already) to buy treasuries

with segregated FED funds,
or special-series FED bonds,
or "deep, deep, DEEP storage" gold,
or with special, valuable tachyon-neutrino alloys (by the pound)
or with non-inflationary, monetized and sterilized nunsuches -

ways that don't excessively feed inflation.

That's been his entire game from Aug 2007 until now & there's no reason I can see for him to stop

I tend to agree, though I will admit to wild swings of opinion on where this is going.

Perhaps we are changing our currency, from debt based to nationalized wealth based currency.

Between 1913 (The Fed) and 1971 (Nixon closed the gold window) we went from a gold based currency to a debt (U.S. Treasuries) based currency.

Now we seem to be nationalizing major swaths of American business, by way of "bailing them out." Perhaps it will be the iron fist of nationalized socialism, in the velvet glove of bailouts, obtaining controlling interest in banking, mortgage and other financials, real estate, industrial (GE), automotive, medical (universal health care), pharmaceutical, energy, think tanks, universities, tobacco, big agriculture, transportation, insurance, news media, ... industries that will become the new backing for our currency.

Foreign countries that hold vast quantities of Treasuries and that play their hand well can end up owning some of this wealth.

Surely the Banksters, Politicians and Powers That Be Behind Them are all eager for more Control. They will not waste this opportunity.

Whereas Bush II disappointed us conservatives for not resisting this, I am confident that Obama will not disappoint those seeking to extend this centralization of power.

Back to your post ... the extra dollars that must be printed will likely not reach the hands of us commoners in quantity. Rather they will be used to further nationalize and socialize America.

The Dollar Bill will become the ultimate ETF.

[The Outback Oracle]

Re: bailout endgame: will treasurys crash due to Fed monetization?

GJ,

In general Peter is correct, but there are numerous possibilities Peter and the monetarists' don't take into account.

For example, they believe on the one hand that the US government and quasi-governmental institutions like the Fed will ignore their respective charters and create inflation in order to deflate debt.

However, if charters are being ignored, there are a lot of other ways this can happen besides just printing money.

For example: Dr. Michael Hudson had responded when asked how he would fix the situation we are in now.

He said that the US government could just nationalize all unemployed persons and put them to work rebuilding the next generation infrastructure.

In this case, no inflation because no money is involved.

cIue..Have you got a reference to the Hudson article? I don't see how no money is involved?

[grapejelly]

Re: bailout endgame: will treasurys crash due to Fed monetization?

For example: Dr. Michael Hudson had responded when asked how he would fix the situation we are in now.

He said that the US government could just nationalize all unemployed persons and put them to work rebuilding the next generation infrastructure.

In this case, no inflation because no money is involved.

if these folks are getting paid, isn't money printing involved?

There are numerous ways of pretending that no monetization is happening...but if it is, won't the market pick up on that?

[metalman]

Re: bailout endgame: will treasurys crash due to Fed monetization?

I have long worried that what is coming up, is that the Fed will be the only one in the market to buy all these bonds that will be issued. This is the endgame in the whole financial crisis, the Fed monetizing all debt and the buyer of all resort.

Peter Schiff puts this very well:

Just as the U.S. government issues mountains of new debt to finance the multi-trillion annual deficits planned by the Obama Administration, speculative holders of existing debt will be offering their bonds for sale as well. In order to prevent a complete collapse in the bond prices the Fed will be forced to significantly increase its buying.

However, since the only way the Fed can buy bonds is by printing money, the more bonds they buy the more inflation they will create. As inflation diminishes the investment value of low-yielding Treasuries, such a scenario will kick off a downward spiral. But the more active the Fed becomes in their quest to prop up bond prices, the bigger the incentive to hit the Fed’s bid. The result will be that all Treasuries sold will be purchased by the Fed. But with the resulting frenzy in the Treasury market, and with inflation kicking into high gear, we can expect that demand for other debt classes that the Fed is not backstopping, such as corporate, municipal and agency debt, to fall through the floor, pushing up interest rates across the board.

In order to “save” the economy from these high rates the Fed will then have to expand its purchases to include all forms of debt. If that happens, run-away inflation will quickly turn into hyper-inflation, and our currency will be worthless and our economy left in ruins.

schiff is friggin clueless. try...

No Deflation! Disinflation then Lots of Inflation nov 2006
The Myth of the Slow Crash aug 2007

waste of time reading two dozen shitty imitators or clueless right wing ideologues like schiff and left wing ideologues like hudson... will lose you all your $$$. at least hudson gets how the economy functions, but nationalize infrastructure labor... great! turn the usa into one giant big dig fiasco... designed by the Marx Brothers, built by the Three Stooges and managed by Willy Sutton. my pet rabbit understands more about how the economy works than schiff does. bet he's never heard of the fire econ.

In order to “save” the economy from these high rates the Fed will then have to expand its purchases to include all forms of debt. If that happens, run-away inflation will quickly turn into hyper-inflation, and our currency will be worthless and our economy left in ruins.

ej's been battling mish and the other deflationists morons on this score forever. the deflationists say 'the fed will never, ever, ever print money and buy anythig by tbills. forget mbs! that will never happen! the fed's charter won't allow it! blah, blah, blah!!!'. WRONG. ej has said for YEARS that the gov't will print and buy ANYTHING. buildings, if they have to. why not print and pay salaries? monetize salaries? 'but that's hyper-inflationary' whine the deflationsts. wait... isn't this an argument about how a deflation spiral can't be stopped?

why anyone listens to these cretins is friggin beyond me... must be the ideology that attracts... or the suits... or the haircust.

here's what you learned here over the last 10 years...

- credit bubble
- pop
- disinflation
- radical reflation - 1% rates, crazy credit machine, credit risk pollution...)
- side effects... housing bubble, lbo bubble, pe bubble, hedge fund bubble, etc.
- uber credit bubble
- pop (securitized credit market)
- reversal in funds flow from poor to usa & sudden stop (no one's ripped off this idea from itulip yet, but give them time...)
- credit crunch, banks go tits up, etc.
- disinflation
- radical reflation - 0% rates, TARP... remember the credit risk pollution superfund ej talk about in 2006? what's TARP then?

am i missing anything?

when i read posts like this i think 1/2 the folks here forgot everything they used to know... learned here over the years... and the other 1/2 forget where they learned it.

and that concludes my pissy sunday pm rant :mad:

[c1ue]

Re: bailout endgame: will treasurys crash due to Fed monetization?

cIue..Have you got a reference to the Hudson article? I don't see how no money is involved?

if these folks are getting paid, isn't money printing involved?

There are numerous ways of pretending that no monetization is happening...but if it is, won't the market pick up on that?

I had thought this was from the Hudson interviews, but a review shows that this is not so. But if you haven't seen the videos, it is still worthwhile.

Given this, my recollection was probably from one of the weekly Counterpunch.org articles from August-ish last year - I'll continue looking. I have posted a few times in the past about this option so it is not completely out of the blue.

The statement by Dr. Hudson was a one liner near the end of the article.

Either way, the point is if a significant portion of the population is driven to dependence on the government for survival, for example via very high unemployment, or via high stagflation, the government can mobilize those resources without spending much cash. Why? Because the wages can be just food and shelter.

Just as Zimbabwe hasn't collapsed into Mad Max because the government owns the gold mines, so too does the US government have access to purchasing power which is relatively unaffected by inflation/dollar depreciation.

If workers are getting paid in food and shelter - there won't be much effect on the money supply. This is what happened in the Great Depression with the WPA.

[c1ue]

Re: bailout endgame: will treasurys crash due to Fed monetization?

cIue..Have you got a reference to the Hudson article? I don't see how no money is involved?

if these folks are getting paid, isn't money printing involved?

There are numerous ways of pretending that no monetization is happening...but if it is, won't the market pick up on that?

I had thought this was from the Hudson interviews, but a review shows that this is not so. But if you haven't seen the videos, it is still worthwhile.

Given this, my recollection was probably from one of the weekly Counterpunch.org articles from August-ish last year - I'll continue looking. I have posted a few times in the past about this option so it is not completely out of the blue.

The statement by Dr. Hudson was a one liner near the end of the article.

Either way, the point is if a significant portion of the population is driven to dependence on the government for survival, for example via very high unemployment, or via high stagflation, the government can mobilize those resources without spending much cash. Why? Because the wages can be just food and shelter.

Just as Zimbabwe hasn't collapsed into Mad Max because the government owns the gold mines, so too does the US government have access to purchasing power which is relatively unaffected by inflation/dollar depreciation.

If workers are getting paid in food and shelter - there won't be much effect on the money supply...

[cobben]

Re: bailout endgame: will treasurys crash due to Fed monetization?

I have been working through the Hudson interviews, long and winding and hard to keep focused, but there's some real gold in there. And lo & behold, what do I find, but this.


Hudson is guilty - off with his head!!



http://www.itulip.com/forums/showthr...=8807#poststop

"I believe he (Hudson) is saying that governments look for expert advice, such as the Whitehouse asked of him in 1970, as to what to do about the fact that the French had drained the US Treasury of gold, and what would happen if they defaulted and put the world on the US treasury standard. He did an analysis and issued a report that explained that the result was to be massive trade deficits, as trading partners purchased treasury bonds to prevent the appreciation of their currencies, and that this process would persist until the US absorbed the entire world's economic surplus. The White house, instead of taking that as the warning it was intended to be, took it as the blueprint for a bold plan. And we've been on it ever since. He's studied societies going back thousands of years and has seen a pattern of similar behavior, that governments inevitably stumble across ways to get out of un-payable debts in the most domestically politically safe way possible."

Now something tells me that here is also the key to what will come next - we just have to wait & see how the guvm'nt will wiggle out of the debt trap corner it has backed itself into. It could be a real doozy, that no-one has even thought up yet.

[tree]

Re: bailout endgame: will treasurys crash due to Fed monetization?

My wild guess--runaway inflation, then devaluation of dollar. Foreign goods become painfully expensive, forcing renewal of American manufacturing. Unions used to create new apprentice programs to teach almost-lost-forever skills.