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mdman

Fed Monetizing Debt?

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Fresh off the ticker

The upshot: The Fed bought nearly half of LAST WEEK'S 7 year Treasury Issuance TODAY.

Huh? Remember, after the 5 year auction that went badly (and which I wrote about) the 7yr auction went "well." Rick Santelli (and a lot of other people) agreed - demand was strong. That made no sense to me at the time, coming one day after a near-failure in the 5 year.

Well now we know what happened: The Fed pretty clearly pre-arranged, either explicitly or by "suggestion", that the Primary Dealers take up the auction with the promise that The Fed would immediately monetize half the issue!

Are the doom merchants (Denninger, zerohedge, Martenson) getting their knickers in a twist, or is this a significant development? Opinions from our resident fixed income experts highly welcome. Presumably, if their take is correct, the Fed can't continue doing this, as it only works if other investors don't find out.

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Fresh off the ticker

Are the doom merchants (Denninger, zerohedge, Martenson) getting their knickers in a twist, or is this a significant development? Opinions from our resident fixed income experts highly welcome. Presumably, if their take is correct, the Fed can't continue doing this, as it only works if other investors don't find out.

:angry:

Ron Paul confronted Bernanke about this last week.

Watch the video at 3mins in:

Ron Paul vs. Bernanke - Monetizing Debt

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Denninger went further in this video from yesterday in which he suggests Helicopter Ben fibbed to Congress last week about monetizing and should be prosecuted.

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They may need to put that bomb proofing to the test sometime soon.

I'm starting to like those founding fathers and the right to bare arms! ;)

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Are the doom merchants (Denninger, zerohedge, Martenson) getting their knickers in a twist, or is this a significant development?

They're getting their knickers in a twist in my view.

The purchases were part of the Fed's stated programme to buy $300bn of Treasuries. The range of Treasuries being bought was pre-announced by the Fed well in advance of the event, so there was no subterfuge.

Sure, they mopped up the 7-year notes that had only just been issued by the Treasury and it's pretty obvious that the whole thing was done in concert with the primary dealers to ensure the auction went smoothly and the results looked good. But why would you expect otherwise?

What happened is no different than what's been going on over here for months with the BoE's QE programme. No-one has raised an eyebrow, because we expected it to be played like this.

I'm just surprised that they're surprised.

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They're getting their knickers in a twist in my view.

The purchases were part of the Fed's stated programme to buy $300bn of Treasuries. The range of Treasuries being bought was pre-announced by the Fed well in advance of the event, so there was no subterfuge.

Sure, they mopped up the 7-year notes that had only just been issued by the Treasury and it's pretty obvious that the whole thing was done in concert with the primary dealers to ensure the auction went smoothly and the results looked good. But why would you expect otherwise?

What happened is no different than what's been going on over here for months with the BoE's QE programme. No-one has raised an eyebrow, because we expected it to be played like this.

I'm just surprised that they're surprised.

Isn't the point that the Fed could have bought at the auction but decided to do it in an opaque way to cover up the lack of foreign interest?

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Isn't the point that the Fed could have bought at the auction but decided to do it in an opaque way to cover up the lack of foreign interest?

I don't think they were trying to hide anything. I think the Fed was just engaged in QE like the the BoE here. When I read it sounded no different to me.

With the caveat, I don't know anything about Treasuries and Primary Dealer `mechanics` so would defer to FreeTrader on this.

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Isn't the point that the Fed could have bought at the auction but decided to do it in an opaque way to cover up the lack of foreign interest?

No, the rules and mechanics of the Fed's purchases were set out when the programme was first announced. They don't bid at the US Treasury's auctions and only make their purchases through reverse auctions with the primary dealers.

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The inflation has already occurred. It was created via the credit bubble, a counterfeiting operation for money that never existed. That is now being moneterized to hold the bubble prices in place. Once it has been moneterized and the banks are sitting on large piles of money rather than credit debt they can begin the cycle anew. They will use those mounds of cash to create a new credit bubble.

There is no reason a house should not cost a billion pounds on average. Everyone could still pay their mortgage with 0.0001% interest rates. Although they could not repay capital, it would be interest only. Money is an illusion, what is desired is that people receive less for their labour than it is worth to allow others a profit extraction.

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