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An interesting exercise in the always dangerous practice of extrapolation: A look at this week's...

An interesting exercise in the always dangerous practice of extrapolation: A look at this week's H.4.1 update shows the Fed holding $1.583T of outstanding 10-year equivalents or, a record 30.32%. By extension then, only 69.68% remains for the private sector. Currently, the figure is rising ~0.3% per week as Bernanke and company snap up Treasury bonds (TLT, TBT). Were that pace to continue until 2018, the Fed would be in possession of virtually the entire market. Food for thought from ZeroHedge and Stone & McCarthy.
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Comments (5)
  • Zanalyst
    , contributor
    Comments (79) | Send Message
    "Were that pace to continue until 2018, the Fed would be in possession of virtually the entire market."


    Actually, that's been part of the plan all along - acquire all of the UST debt - then forgive/cancel it - and nobody loses and everybody's happy!


    The TBTF/J banks (finance guys) have known this all along (which is why they are always there to "buy the dips") while the academics (econ guys) refuse to acknowledge this;


    firstly, because the econ guys need a perceived crisis so they can feel relevant and justify their totally, completely and utterly useless research grants; and,


    secondly, because they didn't think of it - notwithstanding the millions upon millions given to them in totally, completely and utterly useless research grant money.
    23 May 2013, 10:50 PM Reply Like
  • AZ Desert Trader
    , contributor
    Comments (276) | Send Message
    So for all the non econ folks out there like me, what would it actually mean if "The Fed" bought up all US treasuries? I mean really what could or would happen at this point?
    23 May 2013, 11:10 PM Reply Like
  • Russ Winter
    , contributor
    Comments (691) | Send Message
    Another of the great Pinocchio lies that Bernanke likes to spew is the notion that the Fed "can just let holdings roll off (mature)," if they have to drain. Throughout the hearings before Congress, he assured the panel of this. Had his interrogators done some fact checking, they would have seen that the Fed has no short-term maturities to roll off. In fact, like the most leveraged hedge fund in the world that it is, it's loaded to the gills with longer-dated Treasuries. There is no flexibility with this portfolio.

    23 May 2013, 11:14 PM Reply Like
  • User 10263571
    , contributor
    Comments (20) | Send Message
    Good point, Russ
    and let's remember what happens when a bond matures. The debtor -- in this case the US Government -- must pay off the existing bond holder (either out of their own pocket or via refinancing).


    Since the U.S. government doesn't pay down a dollar of our national debt, they are constantly rolling over the debt -- that is, they hold new auctions to borrow the money necessary to pay off those bondholders who have maturing securities. As the saying goes, "they rob Peter, to pay Paul."


    So any of the securities that the Fed allows to mature have to be replaced by new bonds that someone else is crazy enough to buy. When we get to the point that the Fed basically owns the treasury debt, and no one remains who wants to allow the U.S. to refinance, we will have a replay of the crisis of '08/'09.


    Only instead of sub-prime borrowers in the housing market going bust, it will be sovereign governments who are recognized as being insolvent.
    24 May 2013, 12:16 AM Reply Like
  • Owen
    , contributor
    Comments (682) | Send Message
    "only 69.68% remains for the private sector."


    The Japanese and the Chinese governments each owns over $1 trillion of US Treasuries. Not all of it is in 10-year notes, of course, but I suspect the portion owned by the private sector is already less than half of the "69.68%" number quoted.


    At a yield of 1.7%, the only ones holding U.S. 10-year debt are those who can't replace it with another investment.
    24 May 2013, 03:48 AM Reply Like
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