Register for Free
Post comments, receive updates via email, gain access to exclusive content, and more.
Spam Safe!
Email
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.....
- cmartenson's blog
- Login or register to post comments
- 63219 reads
Print
Comments
Hello Chris,
Astonishing. Thanks, as ever, for your fantastic investigative work.
DavidC
Ouch!
Could someone please make the markets conform to my personal beliefs? Thank you.
Captain Sheeple
Holy cra*! Besides PM and physical foreign currencies what other vehicles are good for protecting against a dollar debacle?
Jeff
"If the American people ever allow private banks to control the issue of their currency...the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson 1802
Thanks Dr Martenson, I think other articles have had titles like 'US Treasury Auction Fails' but this is the proof in the pudding. And the pudding's gone bad!
Thanks so much. I had suspected there was something fraudulent happening, now it's plain to see!
The Fed also bought another big old pile of Agency Debt today.
You know, because things are looking so good.
That makes today your average, regular $26.2 billion dollar day of thin-air money injection ($7 + $ 19.2). To put this in context, today's fresh money operation, alone, would have been 88th on the list of yearly total output on the world GDP listing.
Why bother running a whole country when you can just print up an entire GDP in a single day? Sooner or later folks are going to lose the subtle connection between dollars and sense.
Chris, All,
I think the bigger issue is the Fed's buying of GSE debt and securities.
Even after all the recent long term Treasury buying, the Fed still has ~ $100 billion less in Treasuries on its balance sheet today than it did at the start of the mortgage crisis two years ago. At the end of July 2009, the Fed had ~ $683 billion in Treasuries vs. ~ $352 billion in July of 2008 vs. ~$786 billion in July of 2007. It's important to note that the mix of Treasuries on the Fed's balance sheet has changed from almost all short term bills, to about 2/3rds bills (short term) & 1/3rd notes (longer term). Most believe the Fed moved to longer durations to keep long rates down. I hold a different view. I believe the Fed moved to longer term notes to prevent yields on short term bills from going negative as they did during the peak of the financial panic/meltdown. I also don't believe the Treasury is having any difficulty selling debt. Demand for Treasuries, especially Treasury Bills is very high. I believe the Fed is simply replacing the Treasuries it sold during the peak of the crisis.
If you want to see the face of monetization you need to look at the Fed's GSE debt and securities purchases. Since the end of September 2008, the Fed has exchanged > $650 billion in freshly printed federal reserve notes (cash) for GSE mortgage paper. Believe me when I tell you that at this point, the Fed IS the mortgage market. And mortgage paper is the conduit that the Fed is using to flood the banking system with money. And remember, the Fed has announced their intention to purchase $1.25 TRILLION in GSE paper. Talk about a helicopter drop!
BTW, the Fed's purchases of GSE paper are very likely illegal. Per the Fed's CONgressional charter, the Fed is only allowed to purchase investments backed explicitly by the U.S. Gov't. GSE paper is issued with an explicit warning that it is NOT backed by the U.S. Gov't.
We are witnessing the biggest bailout and wealth giveaway in history.
I just passed this great post on to Zero Hedge. They loved it!!
http://www.zerohedge.com/article/feds-ust-pomo-pyramid-scheme-exposed
This news is not new. I wrote about this a couple of days ago here ... http://financialsense.com/fsu/editorials/2009/0804.html
and followed up that article yesterday ... http://www.ronpaulforums.com/showpost.ph... and this morning ... http://www.ronpaulforums.com/showpost.ph...
Brian
Hello Brian,
Welcome to Chris's site and many thanks for your links. It's fantastic that through the work of the likes of you, Chris, Karl Denninger, Tyler Durden et al that this information is coming out.
To me, as a reasonable and rational adult (I hope!), the most important thing is that we have access to the information so that we can make our minds up on the basis of the facts rather than the sugar-coated 'everything is OK' pap we are being fed by the pewors that be (one can't help feeling that by their actions, they are showing how absolutely petrified they are)!
DavidC