Tuesday, December 29, 2009

Eyes Wide Open And Pedal To The Metal

Ilargi: On Christmas Eve, in No Morals, No Hazard, I talked about Eric Sprott’s report "Is it all just a Ponzi scheme?", which suggests that $704 billion in purchases of US Treasuries cannot be accounted for, since they are on file as purchases by what the Federal Reserve Flow of Funds Report labels the "Household Sector", which, it turns out, doesn't exist. It's merely a name under which all unknown purchasers are grouped, while remaining unknown. The purchaser may be the Fed itself, unwilling to admit to more purchases than are already on file.
Alternatively, as someone suggested, the Treasuries may never have been issued in the first place, and the entire thing may be an empty charade aimed solely at keeping up the appearance of a functioning US sovereign debt market.
This possibility, which Sprott failed to mention, opens up whole new vistas, and would certainly lend a lot more credence to the idea that US finance policy, as designed and engineered by the Treasury Department and the Federal Reserve, is indeed nothing but the giant Ponzi scheme Sprott suspects it may be.
The Tyler Durden collective at ZeroHedge takes Sprott’s suspicions a step or two further, one might say, in a little directive called "Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else".
Durden looks at what the net issuance of US fixed income has been in 2009, after you subtract the part purchased by the Fed (which is after all not a real purchase, but just money going from one's left pocket to the right one, I’ve used the metaphor numerous times in relation to US financial policies).
What Tyler Durden then finds is that net US$ denominated fixed income issuance was only $200 billion this year. For 2010, though, since the Fed is set to leave the scene stage left along with Quantitative Easing sometime early spring, over $2.06 trillion will have to be sold to parties other than the Fed.
continue reading Eyes Wide Open And Pedal To The Metal

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