Why Is the Fed Buying Treasuries?

Includes: TBT, TIP, TLT
by: Jeff Nielson

The U.S. government (and their loyal, media-parrots) has spent a great deal of time crowing that “demand has remained strong” for U.S. Treasuries. A few years ago, such chest-beating would have been seen as simply a waste of time – since selling U.S. Treasuries has never before been an issue.

How times have changed! With the U.S. now hopelessly insolvent, it's imperative for the U.S. government to convince the world that demand for its debt remains strong. Should the foreign creditors who hold a mortgage over the U.S. economy see such demand evaporate, this would cause interest rates to immediately soar – followed shortly by a downgrade to the U.S.'s national credit rating, which still holds the same farcical “AAA” rating as trillions of dollars of Wall Street scam-products.

I have often referred to the superb research and analysis of Chris Martenson in my commentaries, principally with respect to his ground-breaking presentation: the Crash Course. However, this week it was Martenson's sleuthing skills which have created a stir.

In a post from his blog on Thursday, Martenson revealed that during the previous week's Treasury auctions that the Federal Reserve secretly bought nearly half of the Treasuries which were auctioned. This is yet another example of the scam-mentality of the U.S. government – hardly a surprise given the scam business-models of their Wall Street masters.

It's a very old form of fraud to plant your own agents at an auction, bidding on your own “goods” in order to drive up the prices. The fact that the U.S. government needs to resort to such tactics is the clearest indication yet of how close the U.S.'s Ponzi-scheme economy is to total collapse.

Regular readers will already know that it is not a question of “if”, but merely “when” the U.S. goes bankrupt (see “The Death of the U.S. Consumer Economy” and “Rising U.S. interest rates signal hyperinflationary depression”). Contrary to the rubbish published on a daily basis by the U.S. propaganda-machine, the U.S. government is not working to “rescue” the U.S. economy – since it is already beyond salvation, merely struggling to delay formal default.

With over $57 TRILLION in total public and private debt (see “A Tale of Two Economies: the U.S. versus China”), and an additional $70 to $90 TRILLION in unfunded liablilities, the U.S.'s relatively puny $11 trillion economy cannot possibly service the interest payments on all that debt (assuming that future lenders could even be found).

Yes, I'm aware that the U.S. pretends to have annual GDP of roughly $13 trillion per year. However, the same Chris Martenson pointed out in his “Crash Course” how $2 trillion per year of so-called “GDP” is nothing but statistical padding. It is “deemed GDP” for which no business transactions take place. Strip away that padding, and not only is actual GDP reduced to $11 trillion but the U.S.'s debt-to-GDP ratio immediately becomes 20% worse. Indeed, if the U.S. was to begin to report actual GDP, rather than yet another fantasy-number, it is virtually certain that it would have already lost the “AAA” credit-rating which it desperately needs to delay bankruptcy.

Even more importantly, the Fed's tactics at last week's Treasuries auction reveal that U.S. “monetization” of its debt is much more extensive than what “Helicopter”Ben and the rest of them are pretending. Martenson's research (and revelation) only cover one week of auction activity for U.S. Treasuries. We have no way of knowing how many tens of billions of dollars of Treasuries have been secretly bought by the Federal Reserve in previous auctions.

Apart from the impact on U.S. interest rates (and solvency), Martenson's shocking (or not-so-shocking?) discovery has dire implications for the U.S. dollar – from two perspectives. First, it reveals that demand for U.S. dollar-products is much lower than what is pretended by the Obama regime.

Secondly, the much greater degree of “monetizing debt” (i.e. printing money to pay the interest payments on its debt) reveals much greater money-printing (i.e. dilution) of the U.S. dollar than what is claimed by the U.S. government.

It is elementary economics that when you increase the dilution of anything that the value of each unit must decline. Thus, this adds yet another “bubble” to the U.S. bubble-economy: the U.S. dollar, itself. As with all bubbles, the drop in price will be both painful and rapid when awareness spreads concerning the latest U.S. con-game.

On the “plus” side for the Obama regime, the imminent plunge in the value of the U.S. dollar will translate directly into soaring inflation in the U.S. economy since a falling currency and rising prices are “two sides of the same coin”. This soaring U.S. inflation will help the U.S. government increase the size of its lies about incremental GDP (see “U.S. government converts INFLATION into GDP”), and thus pretend that the U.S. economy is “growing” in the 3rd quarter.

This will impress the market sheep much more than the truth: that the U.S. economy continues to shrink by at least 5% per quarter. However, it shouldn't take such extensive analysis to reach the conclusion that the U.S. economy continues to shrink at a depression-like rate.

The U.S. is a “consumer economy” (i.e. a “borrow-and-spend” economy). With imports plunging, government revenues plunging, consumption plunging, and credit virtually cut-off for U.S. consumers, this economy must be shrinking rapidly. And (thanks to Wall Street) all this economic activity has been heavily leveraged – which (as a matter of basic arithmetic) amplifies the rate at which the U.S. economy shrinks (as bubble after bubble implodes).

It is obviously a pertinent question to ask how many months the U.S. economy can continue to survive – given that it is already engaging in fraud at government auctions of its own debt. The same foreign “suckers” who have been burned for hundreds of billions of dollars buying grossly over-priced chunks of Wall Street fraud-factories are not going to react well when they discover they are being scammed directly by the U.S. government.

If the U.S. is cut off of its “life-line” of foreign credit, the next day there are only two possible results: a formal declaration of national default, or full monetization of U.S. debt. If the U.S. is forced into printing many trillions of new dollars per year (as opposed to pretending it is “borrowing” this money), this immediately begins the hyperinflation-cycle which has been predicted by myself and many other respected commentators and analysts.

The United States is already bankrupt. Martenson's revelation simply brings the wide-spread recognition of this insolvency much, much closer.