"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, February 7, 2013

Federal Reserve - the Buyer of ONLY Resort

I came across the following story in my readings today and quite frankly, was thunderstruck after going through it and looking at the data. I did not think this was possible and am still at a loss to explain it so perhaps some of you math whizzes out there can make it simpler for me. Either way, it is simply mindboggling!

Here is the title - see if it makes you sit up and take notice as it did me!

Fed Has Bought More U.S. Gov’t Debt This Year Than Treasury Has Issued

Here is the link:

Here are the appropriate links referenced in the article.

Federal Debt outstanding as of the end of the calendar year 2012:   16,432,730,050,569.12

Federal Debt outstanding as of February 6, 2013:   16,479,954,658,103.57

Amount of Increase in Debt: 47,224,607,534.40

If I did my math correctly, the size of the Federal Debt increased $47.224 Billion since the beginning of the year.

Now look at the Fed Balance sheet holdings of US Treasuries over that same period.

Fed Treasury Holdings as of Wednesday, January 2, 2013:     1,666,118 
Fed Treasury Holdings as of Wednesday, February 6, 2013:    1,717,182

Amount of Increase in Fed Treasury Holdings since the beginning of the year:   $51.064 Billion

That is $3.879 BILLION MORE than the US Treasury has issued this year!

Again, I have no idea how this is supposed to be possible but the numbers are what they are. Scotty beam me up. We are freakin' doomed!


  1. It means the Fed has had to buy virtually all the debt that the Treasury has issued PLUS all the US debt that other entities are selling. Eg China has decreased its holdings of US Treasuries, so not only has it NOT bought any new debt, it has sold some of its existing US debt.

    1. Daz;

      Thanks for that quick comeback. That makes perfect sense. We will have to do some research to see what the TIC (Treasury International Capital Flows) data shows on those Chinese Treasury holdings.

    2. You're welcome. Thanks for all your charts and insights. A great help!!

  2. Dan it was my understanding that the Fed did not buy debt directly issued by the government as that would be seen as outright debt monatisation. They therefore buy debt from financial institutions that then use this new money to purchase the newly issued US debt.

    If this is the case then the Feb are not limited by the amount of new debt issuance but by the total debt owned by institutions i.e. a large proportion of the $16.4 trillion and it is entirely possible for the Fed to buy more debt than is issued. In fact they could buy many times the amount in the current QE program.

    1. Dominic;

      This is why I love having you all out there to clue me in on this stuff. That is some great information. That is an excellent point!


    2. Correct. From the Federal Reserve Act:

      "...any bonds, notes, or other obligations which are direct obligations of the United States or which are fully guaranteed by the United States as to the principal and interest may be bought and sold without regard to maturities but only in the open market."

      Note the last phrase: only in the open market. The Fed can't buy directly from the Treasury at auction, but can buy from literally anyone else.

      Nice way to slip the primary dealers a few billion in risk-free profit, too, since I *highly* doubt the PDs are selling to the Fed at the same price they buy from the Treasury.

    3. Yes, the PD's most likely get a commission when a bank or foreign entity sells and also when the FED buys it from them. Who needs an economy when this is going on. Print to infinity as long as the PDs get their cut

  3. Maybe, it's due to the time delay between actual buying and a transfer to the Fed's balance sheet?

    Anyway, Fed certainly becomes a larger buyer... and it agrees well with their mathematical models of assets price "stabilization" (i.e. reflation :) - as partially highlighted in the papers by Eggertsson from NYFed:


  4. Biosci;

    Thanks for providing some further details on that topic. It is most appreciated.


  5. You wrote a really great article. Have you seen this site. He has good stock trading advice.

  6. nothing can go down much if fed keeps printing $4bil a day...

    that said, CCI index looking poorer as crude oil losing 20-day MA and crude does need a correction...

    ags look very poor after usda report as well.

    gold needs to go to 1626 as it had 270k volume on that day, high volume lows demand a retest!


  7. Hi Dan,
    This is a little off topic but I suspect you will be commenting on the S and P soon since it is near/at all time highs. You always talk about how silver correlates with CCI. I've been noticing that JPM seems to correlate with S and P. I know the S and P is composed of a lot of companies, but are some more heavily weighted than others? Like how the Euro makes up for 1/2 of the DXY?

  8. I expect that, at some point, keeping interest rates artificially low would require the Fed to buy all 16+ trillion of U.S. government debt. Fundamentally, why would anyone want to hang on to something that has a price artificially rigged higher than it is fundamentally worth. Sell while the price rigging is in effect. So, fundamentally, China, Japan, and all holders of U.S. debt would want to dump if they could get away with it. Directly or indirectly, in order to maintain the price rig, the Fed would then have to buy much more than the Treasury issues. They would be buying both the stock and the flow.

    I am also of the opinion that the Fed's plea for help on the fiscal side would most easily be accomplished by requiring that retirement funds be invested in Treasuries. Now we read that idea is indeed being investigated by the newly established and supposedly independent consumer protection arm of the Fed. Ain't Dodd-Frank great!

  9. Always the possibility that the biggest holder of US Treasuries, the Social Security and Medicare Trust Funds needed to liquidate to pay off the baby boomers and nobody else buying?

  10. Hey Dan, do you know by any chance what happened with KWN it has been attacked

  11. Hi Eli,

    It appears the KWN news site has been hacked. I guess Big Brother doesn't want us getting the real news. If you go there, your computer will get a virus. That's what happened to me, but Iwas able to fix it pretty easily. You can safely go to the site by using your smart phone. It seems to be be only a PC issue. What is really odd, is if you just do a google search, KWN is listed as a harmful site. There was an article on SilverDoctors about this since it was such a huge issue. Thanks Banksters!!

  12. I think the Fed's purchasing of China's T-Bond holdings is somehow related to the orchestrated takedowns in the gold market on the Comex and the doubling of China's purchasing of physical gold over the last year or more.

  13. Never before in Central Bank history has it been so easy.

    Bernanke and Draghi can simply dictate market direction, control inflation, and finance ininite deficits by means of simple "words" and "threats".

    No real action necessary.

    If gasoline prices get too high, just start Pie-Holing about the "mandate for price stability"

    If interest rates start heading up, just manufacture another foreign crisis somewhere like crashing the Euro currency to spook the herd to run under the curtain of safety of U.S. Treasuries.

    If stocks swoon too much, then pull an Uncle Abe and start jawboning about inflation targeting and GDP targeting and threaten to punish "one way speculators".

    I mean really, it has all gotten so easy, why not just run the deficit up to $22 trillion, jawbone inflation down to keep the 10-year under 2%, and then start GDP targeting to send the Dow up to 17,000?

    And at the same time, keep gold capped and collared at $1,650 forever?

  14. We are freakin' doomed!? You must read Mogambo Guru!

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