August 20, 2009

The street smart guys who know all the angles

While the argument rages on in Congress and on cable TV about healthcare reform, Chairman of the Fed, Ben Bernanke, as usual finds another mini-cassette player in the bottom of his big bowl of Caesar salad in the executive lunch room of the New York Fed. He cues it up: "Your mission, should you choose to accept it, is to raise 1/2 trillion dollars over the next two months at Treasury auctions while paying absurdly low interest rates. If you fail, we will disavow all knowledge of this communication. This cassette will crumble into croutons in one minute."

Essentially, that's what the Fed/Treasury has done during July and August - auctioned off close to $500 billion in T-bonds and bills in an effort to keep pace with the exploding deficit. Not so long ago, $500 billion in deficits would have been a particularly bad year, let alone two months. But that was then; this is now.

Who is buying all this stuff? This is a subject of great speculation, particularly among the mordantly funny commenters on, "the street smart guys who know all the angles" (Woody Allen, in his voice-over intro to "Manhattan.") The Fed does things like auction off 5-year bonds to participating banks (required by law to bid at auctions, part of their Federal Reserve charter), and then, when a decent interval has passed (say a week or so), turns around and repurchases the bonds from the bidders. Takes them off their hands, you might say. The ruse is necessary because the Fed is prevented by law from bidding directly at an auction of U.S. debt, presumably because it's too obvious a case of the snake eating its own tail. Are the Chinese, Japanese and petro-states still buying Treasuries? Well, that's hard to tell, frankly. The Fed is playing so many games of indirection that it's hard to find directions out (that's for the Shakespeare fans among you).

The purchase by the Treasury's own bank (the Fed) of the Treasury's promissory notes is all part of the "quantitative easing" (QE) instituted by Bernanke to help deal with this unprecedented "liquidity" crisis. It's another way of saying the Fed is conjuring money out of thin air in such a complicated, follow-the-bouncing-ball way that it doesn't quite look like that's what it is. But that is, of course, what it is. It's simply getting harder to convince all those foreign central banks, systematically defrauded and stiffed by government-sponsored entities (such as Fannie & Freddie) to keep pouring money into the gaping maw of the U.S. Treasury with so little in the way of return. And yet the Treasury's need for money has never been more desperate.

Bernanke has announced that QE will end next month, a decision made more no-brainerish, he says, because the economy increasingly looks robust, especially housing. No doubt you've noticed the same thing - the accelerating rate of foreclosures, the decline in real wages, the multi-hundred K layoffs every month, the coming tsumani of commercial real estate defaults caused by the winking-out of the consumer economy - none of this should obscure your clear view of how good things really are. So, having bought about $300 billion in Treasuries on the "secondary" market, the Fed will pack it in.

That should be interesting indeed. Then what will support the Treasury auctions? The merits of buying practically zero-interest paper from a seriously over-extended country (us)? Don't worry, that was covered in another cassette, this time in the bottom of a Cobb salad at the Four Seasons. The SSGWKATA (see title of blog post) figure it this way: the Fed, the Treasury, Goldman Sachs, JP Morgan Chase and the rest of the power players have been melting the stock market up through S&P index futures, using all the taxpayer "money" the system has been flooded with. This is why the Obama Administration allows the banksters to run wild with bonuses and deregulated horseshit: they're all acting as government agents. It's like combat pay. The Dow and S&P, for example, make no sense in terms of pricing if analyzed by P/E ratios, which are on the order of 23:1, and the volume on the exchanges has been consistently low. When QE ends (next month?), the markets will be allowed to melt down, causing a panic, a 10% "correction" (say, a thousand points on the Dow, one hundred on the S&P), and a "flight to safety," in the form of Treasury purchases, will ensue, as a grateful horde of suckers rushes headlong into the trap laid by their government and their Big Boyz co-conspirators.

Is that not beautiful? Does it make you wonder about the fairness of calling the government "incompetent?" It makes me proud to be an American, in a sick, very twisted way. If the SausaugeWhaKatars (see title again) are right, you can short now and clean up, just like Goldman and Shittygroup.

All investment advice herein is speculative in nature. Past conspiracies are no guarantee of future criminality. Consult your own con man and invest at your own risk. I can neither confirm nor deny that I wrote this. In 60 seconds, this post will fry the zero sector of your hard drive. You've been warned.

No comments:

Post a Comment