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speedybure (< 20)

On The Brink: What has really been going on in the treasury market



July 20, 2009 – Comments (10)



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! 

10 Comments – Post Your Own

#1) On July 20, 2009 at 3:36 AM, awallejr (36.22) wrote:

Didn't Bernanke say to congress he wasn't going to monetize any debt?

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#2) On July 20, 2009 at 4:45 AM, Mary953 (85.31) wrote:

A most interesting thesis, Alstry, and well presented.  Thank you for the insights.  +1

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#3) On July 20, 2009 at 4:56 AM, Mary953 (85.31) wrote:

Speedy,  This was fascinating.  I was going down the blogs and paying more attention to what was written than who was doing the writing.  Yours was right next to Alstry's and got him (I thought) his first compliment and rec from me in months.  I should have checked the top of the blog.  It wouldn't have surprised me at all to see this post under your name.

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#4) On July 20, 2009 at 5:25 AM, speedybure (< 20) wrote:

Yes Bernanke did say that but the minutes have indicated otherwise.

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#5) On July 20, 2009 at 8:53 AM, XMFSinchiruna (26.55) wrote:


Great post, speedy!

Don't forget we still have no satisfactory answers whatsoever regarding the biggest bond scandal in history. I have offered among several potential scenarios the possibility that these bonds could have represented a sort of off-the-books exercise of quantitative easing. What better way to increase the money supply without sending USD holders clammoring for the exits?

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#6) On July 20, 2009 at 9:19 AM, russiangambit (28.69) wrote:

> Didn't Bernanke say to congress he wasn't going to monetize any debt?

Yes, well, he basically lied or distorted the truth because the question wasn't asked exactly right. What a shocker. He admitted to monetizing debt (or printing money) several times previously. I saw him do that personally on 60 min.

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#7) On July 20, 2009 at 9:32 AM, galtline (39.05) wrote:

Great post.  It also doesn't surprise me greatly.  Couple that with Sinch's "biggest bond scandal in history" (which I had actually read earlier), and a picture is emerging.

Speedy, I'm not sure that we'll see a "collapse" of the dollar (I'm certainly no expert, so take all of this with a grain of salt...this is just my uninformed "hunch").

The USD has served as the defacto trading currency.  As such, many countries hold and trade large amounts of our currency.  Foreign countries (China comes to mind) hold a large amount of our debt as well (and you can guess how that is denominated).

My thinking is that they don't want to see the value of the USD plummet (like it should).  Instead, they'll do what they can to prop it up.  This is a good thing for us (because otherwise it would get very ugly, very quickly).  It's awful to say this, but everyone else has been left holding the bag.

Once we are in the midst of a recovery (and the other countries had sufficient time to "unwind"), we should see the dollar weaken dramatically. 

Again...I'm certainly no expert, and I'd welcome some insight from both Speedy and Sinch. 

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#8) On July 20, 2009 at 9:34 AM, galtline (39.05) wrote:


Rec for you.

This is a topic everyone should be following with interest. 

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#9) On July 20, 2009 at 3:40 PM, silverminer (30.02) wrote:


I agree, I think it's highly likely that the dollar devaluation will be a more gradual event than some may have in mind. Of course, being in the midst of a global crisis in which any one of the key players could impact the dollar dramatically with words as well as actions, sharper falls are also very possible. I think it's hard to know the speed of the decline, but the direction is all I need to know in order to invest accordingly. Either way, the events are tragic for the financial well-being of this country, so I take no pleasure, of course, in calling for the deterioration of our currency.

Good insight, galtline


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#10) On July 20, 2009 at 4:31 PM, speedybure (< 20) wrote:

I agree its more of a gradual event, but when the U.S public begins to see inflation, it will then in turn spark a dramatic increase in inflationary expectations. To what that degree shall be will ultimately determine the magnitude in the fall of the dollar. Like i said in the post, China and others are wising up by selling our mi to long term treasuries by buying those which will mature much more quickly. Also you have to look at China using Yuan swaps for international trade. I mean China and Brazil openly said they would be using The real and remimbi/yuan for trade among each other. The dollar is being removed as the reserve currency, just not "officially". I don't expect the US dollar index to even hold 75 by the end of they year and possibly 60 in 2010 or 2011. 

It is clear to anyone who pays attention to the so called "monetary aggregates that they are being doctored, most likely in attemps to prove to our creditors things aren't as bad as they really are. If somone could present a rational explanation that incoporates our potential interest payments to service our debt in the even yields shoot to the moon as in the 70's, our massive unfunded liabilities, our record deficit that looks like it will continue to grow at a grueling pace, the fact that only 1/3 of arms have been reset , etc. I was in the same camp as many people in the sense that we would only expiirence a massive wave of inflation, but the groundwork is bein laid for a hyperinflation scenarion (not that i think that is the only potential outcome, rather it is pointing in that direction with every bonehead government move). 

We all have to remember this has been 40 years in the making and none of us are likely to expiriece something of this magnitude again in our life. When I say 40 years i am referring to Bretton Woods and the closing of the gold window, at which time we began to squander foreign debt like it was nothing, like there were no consequences to our actions. I'm sorry but someone has to pay the piper, and those people are us.

The worst part is, I see know sign of this money printing abating. What i mean by that is, all the talk in the fed minutes and in various other media pulications, is that the fed will do basically anythng to prop up a financial system that will fold eventually. They have talked about extending their reach in terms of assets they will purcahse. I mean optimistically speaking just the purchase of the MBS, which they hold as 1:1 on their balance sheet is pure insanity. For our sake I hope they are worth 20 cents on the dollar.

basically all i;m saying is that everyone should be aware and prepare accordingly because they day will come when unfathomable  rates inflation are upon on, destroying all the wealth held in the USD. 

-But this is only one man's opinion 

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