Diary

Federal Reserve uses Wall Street banks as fronts in money-printing scam

This is HUGE, but requires a bit of geeky background for non-Fed-watchers.

Background: Obama’s maniacal spending requires huge debt issuance. Traditionally, debt issuance was an open and honest market transaction. The U.S. Treasury auctioned debt, and individuals, banks, pension funds, and foreign governments bought it. China has been the biggest buyer recently.

But if the Treasury needs to borrow more than everyone wants to buy, the market-clearing interest rate goes up. The last thing the Fed/Treasury bubble-blowers want is for interest rates to go up. So as part of the Fed panic emergency measures, the Federal Reserve has started printing money to buy Treasury debt. China says, “Wait a minute. We don’t want to buy your debt if you are just going to print money to inflate it away.”

So last week’s Wednesday 5-year Treasury auction went poorly. It spooked the market: maybe the jig is up and nobody is going to finance Obama’s trillion-dollar deficits as far as the eye can see. Expectations for last Thursday’s 7-year auction were gloomy. Suddenly, though, there were lots of buyers! The auction went well, with primary (Wall Street) buyers taking far more than expected, and their enthusiasm encouraging foreign buyers to participate as well.

Today’s news: It was all a scam. This week the Fed printed the annual GDP of a small country to buy those exact same 7-year Treasuries off the Wall Street banks that bought them, and probably paid a little extra as a money-laundering fee.

One assumes our creditors are not amused.