The Fed Is Almost Out Of U.S. Treasuries To Buy



  • Fed Economist Michael Kiley has prescribed $3.5 trillion more in QE to prop up the US economy.
  • The problem is, there aren't $3.5 trillion more in Treasuries for the Fed to buy.
  • This is probably why Fed Chair Powell is urging another massive spending bill, because otherwise, the Fed has no more Federal debt to buy and can't print any more money.
  • The Fed could buy more private securities, but it already owns about 30% of the entire US mortgage market.
  • QE is now up against a wall.
  • I do much more than just articles at The End Game Investor: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

As a kid, one of my favorite card games was hearts. The objective of the game is to get the least amount of points in 4 rounds, 26 points per round. There's one catch though. If somehow you manage to collect all 26 points in a round, all your opponents get 26 points and you get zero. A player who does this successfully is said to have “Shot the moon.”

If the monetary system is a game of inverse hearts and dollars are the points, then the Federal Reserve is about to shoot the moon, collect all the points and end up with nothing. The most efficient way for investors to protect themselves and profit from this is to buy real assets. China is already doing this in record numbers, according to Bloomberg, with soybeans, oil, copper and other commodities. But the most efficient and profitable way to protect yourself is to buy the most liquid, value-dense real assets, chiefly gold and silver, and only secondarily agriculture and energy.

What evidence is there that the Fed is very close to shooting the moon? The Fed likes to talk often about what it calls the “ELB” or “ZLB”, the effective or zero lower bound for interest rates. What it doesn’t talk about is what could be called effective upper bound, the EUB of quantitative easing. What many do not realize is that the EUB has already been hit. In other words, substantially more QE from here from buying Treasuries is, for all intents and purposes, impossible. Here’s why.

The Effective Lower Bound of Interest Rates vs. the Effective Upper Bound of QE

The ZLB or the ELB refers to the inability (or at least the unwillingness) of the Fed to push nominal interest rates into negative territory, even though real rates across all maturities

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This article was written by

Austrolib profile picture
A gold-based approach to protecting wealth and profiting off Fed inflation

I invest in the light of Austrian Business Cycle Theory and cover monetary trends for the purpose of timing the credit cycle. My marketplace service The End Game Investor helps subscribers manage the risks of, and profit from the ongoing fiscal and monetary crisis precipitated by the COVID-19 pandemic. I use gold, silver, and associated stocks and investment vehicles in a low-risk high-return setup.

Disclosure: I am/we are long GLD, SLV, AAAU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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