Is The Federal Reserve Really Purchasing Over 60% of 2011’s Fiscal Deficit? In a Word, uh . . . Yeah!
- Who is buying up US treasuries? Obviously the FedRes! Foreign countries are bailing out quietly. Interest rates are rising despite the FedRes’ purchase! How long the FedRes can continue to keep interest rate from rising further is anyone’s guess. Continued monetization by the FedRes means the USD is toast. This will stoke inflation worldwide. Competitive devaluations mean that other fiat currencies will join the road to debasement. Gonzalo Lira provides the facts (click on the link if you want to see the detail calculations):
Is the Federal Reserve Really Purchasing Over 60% of 2011’s Fiscal Deficit? In a Word, uh . . . Yeah.
The other day, in my post “The Lull Before the Storm”, I mentioned that for fiscal year 2011, the Federal Reserve would be purchasing over 60% of the Federal government deficit. In other words, the Fed would be dancing the Monetization Waltz, just like Latin American countries used to back in the 1970’s: Proof positive that America is indeed a banana republic—only with nukes.
A lot of people didn’t believe me—or wanted me to check my figures. Or wanted to know if I was having an acid flashback from those aformentioned 1970’s. A lot of people couldn’t believe it.
Mark Twain said it best: There are lies, damned lies, and statistics. If you want to deceive your audience, you source your numbers from some shifty salesman with an ideological ax to grind, gussy it up with percentage signs and charts and graphs, and thereby “prove” any damned foolishness you like.
But deceit in this context serves no purpose: It’s in all of our best interests to know exactly what is going on, in fiscal year 2011.So in this brief post (yes I know—shocker), I’m gonna check the figures for my observation—but I’m gonna get ‘em right from the horse’s mouth: From the White House, and from the Federal Reserve.
Verbose ConclusionWith a single market participant buying up at minimum 60% of new issuance, the conclusion is obvious: The Treasury bond market is Bernanke’s bitch. His pimp hand is all over that ho’—and she be doin’ whatever Benny the Pimp wants her to do, as often as he wants her to do it.
Therefore, since Treasury bond yields during FY 2011 will be whatever the Fed wants them to be, they are no longer a reliable indicator of anything. Quite the contrary, the bond markets will mask problems of the underlying economy until they are insurmountable. This shouldn’t be a controversial observation: A single market participant that is purchasing 60% or more of a market owns that market. So anything that that market ordinarily signaled—be it risk, instability, whatever—is now no longer the case. The only thing that market will reflect is whatever fixed idea the Market Pimp will want it to reflect.
Therefore, since any problem that the Treasury bond market might ordinarily reflect will be masked until the very last minute, watching that market for signs of the health of the wider economy will only distract from what is actually happening in the wider economy.
The Treasury bond market is like a concrete highway over a sinkhole: You won’t realize anything is amiss, until the road suddenly disappears.