The Fed is now buying a significant portion of the treasury’s debt so that its auctions don’t outright fail. This directly devalues the dollar which pushes away what’s left of legit investors, creating a downward spiral as legit investors flee. Without cuts in government spending, this could lead to the collapse of the US dollar- exactly what (and how) Peter Schiff and others have predicted. Today’s news means the dominoes are already falling, and this time it’s not just speculation.
The original story broke here, with good financial discussion on Karl Denninger’s (from the above video) blog here.
If the Federal Reserve continues this practice, that could lead to a currency collapse. If it does not, and treasury auctions fail, the budget of the United States government would have to shrink drastically and quickly- ending not just recent stimulus, but inevitably many other longer-running programs, too. The state of California recently learned this lesson. Looking at Congress’s spending history of late (which seems to have no boundaries), the former scenario of monetizing debt and creating inflation seems much more likely.
One might think the threat of either a currency collapse or a drastic withdrawal of “stimulus” money would hurt the stock market, but many are suggesting the stock market isn’t manipulated by traders like you and I. Today’s stock market is instead propped up by Fed-favored banks creating yet another bubble, trading back-and-forth among themselves and incrementing the price of stocks each time. When the market routinely goes up on bad news, how else can one explain the irrationality of the market? The only explanation is manipulation: the stock market is rigged by insiders. I would have thought this impossible years ago due to the incredible scale of the US stock market, but the numbers don’t lie: private investors aren’t much of a factor in today’s market.
The Federal Reserve and it’s partner-in-crime, the Treasury, have engineered the largest house-of-cards in the history of the world. There’s no reason for the world to invest in America’s rigged market and furthermore there’s becoming less reason to treat a Federal Reserve Note (the dollar) as worth anything more than the paper it’s printed on. The US economy and the currency it’s based on is becoming irrelavent; a creation of government planners in their computers, with absolutely no part of it based in the real world that markets must function in.
When the Treasury creates new bonds (T-bills) how do these T-bills end up in the Federal Reserve’s hands, i.e. what are the channels of distribution. I have heard that the Federal Reserve buys them on the “open market”, which usually means Goldman Sachs comes in to the Treasury, buys a large chunk of these bonds, then resells them to investors around the world, the Federal Reserve included – every process along the way peppered with “transaction fees”. Is this how it works?