On The Brink: What has really been going on in the treasury market
July 20, 2009
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For those who have read any of my previous posts, you know my stance on the coming inflation that could cause a total economic collapse via collapse of the USD. Some startling insights from a paper i recently read clarifies some recent action in the bond market among other things.
For those who have been paying attention to the treasury market, in particular mid-long term yields over the past 6 months, it must have puzzled you that yields were rising despite sucessful auctions. Even more puzzling was the fact that there has been significant foreign participation in these auctions. But a paper I read recently which had the information to back up its claim said the following; China and other nations were selling mid and long term treasuries but were buying a larger amount of short term treasuries as to make it appear they were a net buyer of our debt. This helps explain the near doubling of yields just 6 months into 2009. Foreign nations obvisouly have gotten wise to the fact the USD is not in the future as a reserve currency. When you couple this with the fact that other nations have publibly said they conduct foreign trade in thier respective currencies, it makes perfect sense.
It may just be the conspiracy-side of me, but I'm pretty sure I have been witnessing the FED doctoring the monetary base numbers pulished weekly, which also ties into some of the information mentioned above. During the middle of march, The fed announced they would purchase 1.8 trillion of government paper, 300b of which would be in U.S treasuries. Later when reading the June 25th minutes, they more or less said they would purchase a much greater amount. This is worth noting for 2 reasons : 1) They would only have said this if they already had bought a significant portion of the initial amount 2) The entire amount of debt monetized by the fed should imeediately in the monetary base. But the monetary base has been rather flat since this annoucement while the components have been increasing.... The monetary base is composed of the currency portion of m1 plus bank reserves. Currency has been slowly but gradually increasing almost everyweek while reserves have been steady around 900 billion (which is expected because banks need to meet the 10% reserve requirement and have to have enough to cover the coming loan losses as ARMS reset). That being said: The monetary base should have surpassed 2 trillion or at least lie currently around that level as opposed to the published figures which have not really moved while all the comoponents have. In other words, just looking at the monetary base, it clearly indicates the FED has not monetized any debt. This goes in direct opposition to what the June 25th minutes indicated.
These numbers are being doctored!
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