Friday, June 15, 2012

QE by Stealth

Here is an excellent article by Dave in Denver today. He outlines the 'QE by stealth' the Fed is undertaking in the US bond market.

The US is as much in debt as the rest of us. However, they have the reserve currency and, for now, can print at will. So read this article and squirm. When this US bond bubble breaks, that will be the end.

"I've been arguing for quite some time that the real reason we will see more QE, despite the rhetoric coming from the Fed, for the simple reason that it is the only way for the Treasury to keep funding its rabid debt issuance at the current low rates.  As has been widely documented, in 2011 the Fed bought 60% of all new Treasury issuance.  As noted by zerohedge, yesterday and today the Fed directly monetized this week's 10-yr and 30-yr Treasury auctions by purchasing an amount equal to 20% of the 10-yr paper sold and 15.4% of the today's 30-yr auctions:... more here

Spain and Italy don't have this particular luxury, although the politicians are becoming shriller in their calls for it. They have to go straight to the market to sell bonds. This is why the interest rates they need to offer to sell these bonds are larger, and almost at breaking point, compared to the US bond market . No backdoor deals for the Europeans...yet.
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