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Federal Reserve Auction Fails


This is the headline that everyone is waiting to see in the morning newspaper. This is the day that the Federal Reserve can no longer hide its abuse of the US banking system.

This headline means that there are not enough buyers of U.S. debt to pay current liabilities. Forget about taxes, this is not a tax issue. Forget about government spending, this is not about how much your government spends any longer. Right now the federal reserve is taking steps to keep the dollar stable for the short term, knowing full well the house of cards is about to fall.

The news is full of stories about the Federal Reserve trying to “help” the economy. Nothing could be further from the truth. All of the moves that the Federal Reserve is currently making are in preparation for a crash.

You have seen the articles about the Fed buying 600 billion in Treasuries.
This is not to help the economy. This money won’t go to our economy, it will go to paying the short term debt payments on bonds coming due.

Its called Quantitative Easing and its a tool that can be used as well or as poorly as mortgage derivatives. The Fed has dubbed these efforts QE1 and QE2. If you are wondering why QE1 failed….it was for the same reason. The Federal Reserve is using the Quantitative Easing tool to help their friends get out of bonds before the crash.

QE when used as a tool of abuse rather than a tool of repair, is the last step before a failed Treasury Bond auction. QE is the Federal Reserve buying its own bonds. Its exactly like McDonald’s Buying Its Own Hamburgers. Why would McDonald’s ever do this?

The answer is NEVER, but lets use our imagination just like the Federal Reserve uses inventive banking to cheat us out of our money. McDonald’s should be able to manage its business by adjusting the cost and sale prices of hamburgers. In the same way, the Federal Reserve should be able to manage our economy by changing interest rates on our debt. Only in an unimaginable crisis where McDonald’s has so many hamburgers that there are not enough customers to buy them, NO MATTER HOW CHEAP THEY TRY TO SELL THEM, would they resort to buying their own hamburgers.

Welcome to the current situation of the Federal Reserve. There are so many treasury bonds in circulation (and treasury bonds mature much like food spoils) that there is no way to manage them all no matter how much we discount them. If the Federal Reserve did not get creative with its banking, we would have already had an action default. We would have already had our credit rating lowered and been considered bankrupt.

When the Federal Reserve buys its own bonds, which by the way is not legal, it supposedly gives banks more money to lend to the public and increases the money supply. Unfortunately that is just on paper. The money never reaches the public. Even more alarming is the fact that we are seeing the Federal Reserve play much more in the currency of completely worthless 3rd world country central bank bonds. Because the healthy countries are avoiding paper swaps with the Federal Reserve, the Fed is having to swap with low credit rated central banks to gain the capital to pay the short term debt.

In essence they are “Check Kiting” to extend the time before the first failed auction. When the first auction fails, we will not only see that there is not enough money to pay the short term debt (that month’s payment of our debt), but it will also be discovered that the Fed is holding an incredible amount of worthless paper. Think of it as a credit worthy person who lost their job and has been living off credit cards for years. Once the final credit card is maxed and the minimum payment cannot be made, the banks are always surprised to see the mountain of debt behind the scenes and the lack of assets to back the credit that was granted.

Itia (Abroad)

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