from
(snip)"The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.
This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs: with Households lapping up risky assets it is unlikely they will look at Treasuries absent some dramatic downward move in equities, while Foreign purchasers, which many speculate are in a game of Mutual Assured Destruction regarding UST purchases, have in fact been aggressively lowering their purchases of Treasuries (from $159 billion in Q1 to $101 billion in Q2, an almost 40% decline in appetite!). Will the US make these purchases much more attractive come October when QE for USTs ends? And if so, what kind of rates are we talking about? One thing is certain: in terms of priorities of the Federal Reserve, keeping the equity market buoyant, is a distant second to ensuring successful auction after auction well into 2010. After all there is near $9 trillion in budget deficits that need financing over the next 10 years.
From Morgan Stanley:
Flow of funds: The Fed also released its flow of funds data for Q2 on September 17. The main points are that:
•Households reduced Q2 Treasury purchases from their blistering pace in Q1
•Foreign accounts reduced Q2 UST purchases as the Fed ramped up Q/E ops
•Bank Q2 purchases remained anemic despite the fall in other lending options
•Broker/dealer purchases were high but not sustainable, expect Q3 moderation"(snip)
and some additional commentary from a professional investors' BBS -
(snip)TWO TRILLION FIATSCOS [freshly printed dollars - sic]
...of brand new debt, each year, year-after-year, into the economy for at least a decade just to keep the system from collapsing.
In addition, Uncle Sugar has to keep rolling trillions of fiatscos of short-term debt over [ already issued T bills and T bonds - sic]. or pay it back, ha ha.
And there is no way that the Fed is gonna allow Treasury interest rates to rise to their "natural" level of double digits if the U.S. has to rely solely on our foreign debt enablers to fund our profligacy. The Fed and Uncle's ten-trillion fiatsco commitment to housing would be destroyed under such a scenario.
So, there will be an extension of all Fed programs of monetization.
We are truly at the point of "Inflate or Die". (snip)



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