Technical Question about Fed buying Treasuries

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yagasjai's picture
yagasjai
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Technical Question about Fed buying Treasuries

Could someone please help me understand what the Fed is or isn't allowed to do in terms of buying Treasuries? Is there a difference between buying them on the open market and buying them at auction? I assume there is, but I'm not sure. In the "Money Masters" movie, it says that the Fed increases the monetary supply when they create thin-air money to buy Treasuries on the open market. Yet I also know it's a really bad thing if the Fed has to show up at an auction to buy them directly because it ruins the illusion that there is strong demand for our debt. That's a failed auction, and could lead to a sovereign debt crisis. But is there also some kind of formal prohibition against the Fed buying Trasuries directly at auction? Has the Fed been buying Treasuries with money from quantitative easing? Why can they buy on the open market but not at auction?

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Thomas Hedin
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Re: Technical Question about Fed buying Treasuries

What part of "The Fed" are you talking about?  The Federal Reserve Banks, The Federal Reserve board of Gov, or the member banks?

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yagasjai
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Re: Technical Question about Fed buying Treasuries

Oh, boy. I'm not sure which part. I want to know if the Federal Reserve buys US Treasuries and if so how they do it.

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Thomas Hedin
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Re: Technical Question about Fed buying Treasuries

Here is the best place to start.

http://www.peakprosperity.com/forum/us-treasury-scam-exposed/41083

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Davos
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Re: Technical Question about Fed buying Treasuries
yagasjai wrote:

Could someone please help me understand what the Fed is or isn't allowed to do in terms of buying Treasuries? Is there a difference between buying them on the open market and buying them at auction?

Yagasjai:

I'm not sure what you are asking. I think it has to do with the "buying" done by these morons. If so here is the deal.

First, lets define monetization: The Fed buying bonds DIRECTLY from Turbo Tax Cheating Moron Geithner aka The Treasury.

Second, lets look at where we are, right here, right now: Bernanke is using the Primary Dealers as middlemen.

Moron Bernanke's problem is pretty cut and dry:  There aren't enough bonds out there to be bid on.  The System Open Market Account limits Moron Bernankes holdings.

It is believed that on Nov. 3 the FOMC will announce that they will solve their problem and buy directly from the tax cheater. In my book this is a hit job, Uncle Buck is going to get whacked. We're talking like 1.5 - 3 trillion bucks of QE coming. If the speculation out there is correct in this assumption, then this will be a direct monetization, no more of the covert stuff.

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Thomas Hedin
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Re: Technical Question about Fed buying Treasuries

yagasaji,

did the link i gave you make any sense?

yagasjai's picture
yagasjai
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Re: Technical Question about Fed buying Treasuries

Thomas,

Yes, it did. Thank you for it. I was missing the piece about the bond dealers. (Layperson here trying to make sense of things...) So it seems that the bond dealers can buy at auction whatever they want and the Federal Reserve can buy from them whatever they want. So when definitions of QE include the purchases of gov't bonds, that means OUR gov't bonds. Which means they are monetizing the debt, which I knew they were, but wasn't clear how it actually happened. And if I understand the chart correctly, it looks like all of it is actually monetized twice.

And as Davos pointed out, it looks like they will soon remove the dealers from the process and that's why it won't be hidden it anymore.

Very helpful. Thank you both!

Thomas Hedin's picture
Thomas Hedin
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Re: Technical Question about Fed buying Treasuries

yagasjai,

Great to hear back from you.

Which means they are monetizing the debt, which I knew they were, but wasn't clear how it actually happened.

Though technically correct I think "monetizing the debt" is a bit misleading.  I think it would be more accurate to say "monetizing a promise to pay but as a mortgage to the banking system as an interest bearing debt".

I highly doubt that they will remove the primary bond dealers from the equation.  I can't think of any reason why the bankers would support such an action.

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Davos
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Re: Technical Question about Fed buying Treasuries
Thomas Hedin wrote:

yagasjai,

uation.  I can't think of any reason why the bankers would support such an action.

Ughhh maybe a 4 trillion GAAP deficit?

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Thomas Hedin
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Re: Technical Question about Fed buying Treasuries

Ughhh maybe a 4 trillion GAAP deficit?

Davos,

I hope we can agree that when the people go deeper in debt the bankers profits go up.

Why would the bankers want to reduce their profits especially when all they loan is a promise to pay that they create on the spot for free?

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Davos
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Re: Technical Question about Fed buying Treasuries
Thomas Hedin wrote:

Ughhh maybe a 4 trillion GAAP deficit?

Davos,

I hope we can agree that when the people go deeper in debt the bankers profits go up.

Why would the bankers want to reduce their profits especially when all they loan is a promise to pay that they create on the spot for free?

Agree 100% with the bankers.  As to the why - I myself think this may be do or die - I think traditional ways of covering the deficit won't work, something has to give near term.

Thomas Hedin's picture
Thomas Hedin
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Re: Technical Question about Fed buying Treasuries

Davos,

I agree with you that something has to give but the problem is the bankers only solution to the deficite is to offer another interest bearing loan.  They are only motivated by their profits, and after many discussions with bankers, I'm really begining to believe that they really don't think/understand that there is a problem at all.

 

What has to give under this system is the collateral assets backing the loans are to be given through forecloser over to the bankers who only loan a promise to pay.

Wouldn't it be nice if we as american's could just simply own our property without any permanant obligations to someone else? 

Davos's picture
Davos
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Re: Technical Question about Fed buying Treasuries
Thomas Hedin wrote:

Davos,

I agree with you that something has to give but the problem is the bankers only solution to the deficite is to offer another interest bearing loan.  They are only motivated by their profits, and after many discussions with bankers, I'm really begining to believe that they really don't think/understand that there is a problem at all.

 

What has to give under this system is the collateral assets backing the loans are to be given through forecloser over to the bankers who only loan a promise to pay.

Wouldn't it be nice if we as american's could just simply own our property without any permanant obligations to someone else? 

+1 !!!!! Funny, somehow, whatever ones beliefs are, or aren't, we all wound up here. Here with ample resources. And then someone invents a rat race, stipulates that control is necessary and look what we wind up with. Insanity begets insanity.

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