[stoney]

Fed buying back just issued treasuries (or how the 7-yr auction failed)

In a brilliant piece of investigative reporting, Chris Martenson (original article here) has uncovered that the Fed, merely a week after issuing $28 billion in 7 year bonds (which Zero Hedge discussed previously) via its puppet, the US Treasury, of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases. This is undisputed monetization removed simply via one primary dealer and less than 5 days of temporal separation in order to leave no easy trace. As Martenson points out:

"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."

A bit too backdoor. This shows that the 7-yr auction also would have failed. There is nobody but the primary dealers buying this isht anymore.

 

[stoney]

Second article:
Denninger on Fed/Prim Dealer subterfuge

 

[ohio]

So in summary, the Fed is over-issuing debt and then buying it back themselves to create the appearance of demand?

 

[dante]

So in summary, the Fed is over-issuing debt and then buying it back themselves to create the appearance of demand?

No way, not even close. The US Treasury is issuing the debt, and the Fed is buying it. Totally different, in a upstanding, totally moral kind of way. Kind of like when a Corporation sells it's overstocked goods at full price to a wholly-owned Subsidiary (who then sells it at pennies on the dollar). The Corporation looks GREAT since it sold everything at full price, and nobody pays any attention to the Subsidiary.

Oh wait, that's illegal under US law. Hmmm.....

 

[stoney]

Nailed it. It's monetization, albeit through the back door. The 7yr auction would have failed had those primary dealers not bot.

 

[RUFUS]

Nailed it. It's monetization, albeit through the back door. The 7yr auction would have failed had those primary dealers not bot.

As in robot or bought?

 

[stoney]

Sorry, finance language. Bot (as in bought) is much faster to write.

 

[dante]

So PSP is really a financial analyst? Never would've guessed...

 

[jonKranked]

So PSP is really a financial analyst? Never would've guessed...

In a Forest Gump sort of way...



this whole thread reeks of

 

[stoney]

this whole thread reeks of

Why? It's a simple economic fact. The Fed injects cash into the market by buying treasuries. However, when those buy-backs occur within days of issuance, once you take the extra step or selling to and buying from the primary dealers from the equation, they are just putting new money into the market. That is called monetization.

If you were trying to keep the market up, dump money onto it. People will buy shares, as they need to put is somewhere. Market goes up, but value of the dollar goes down.

That is also know as inflation.

 

[dante]

an honest question, how is this different than the Japanese gov't issuing debt and the BoJ buying it? The Japanese debt is equal to 194% of their GDP, and their currency hasn't fluctuated much at all (it's actually gotten stronger in the last 5 years, particularly to the USD. Not saying that the issuance of debt and buying it yourself is a good thing, but with regards to the strength of the currency it hasn't exactly hurt Japan...

 

[stoney]

an honest question, how is this different than the Japanese gov't issuing debt and the BoJ buying it? The Japanese debt is equal to 194% of their GDP, and their currency hasn't fluctuated much at all (it's actually gotten stronger in the last 5 years, particularly to the USD. Not saying that the issuance of debt and buying it yourself is a good thing, but with regards to the strength of the currency it hasn't exactly hurt Japan...

BoJ and Jpn Govt had almost zero debt going into their lost decade. They had wiggle room. We are re-financing debt, and adding additional debt, that whole robbing Peter to pay Ping who paid Paul bit.