OF TREASURY AUCTIONS, ROCKS AND HARD PLACES

The Falcon

The Federal Reserve is clearly resorting to unconventional and perhaps desperate measures to sustain the illusion that buying US Treasury debt and thereby lending to the US government remains the cool thing to do.  Unfortunately for them, their skills at pulling off this type of illusion seem to be slipping.  Or perhaps, their desperation is such that they have no time for elaborate subterfuge.  You be the judge.

In its unprecedented quest to cover the U.S. government’s record setting projected budget shortfall of $1.85 trillion for the current fiscal year, the Treasury held its biggest debt auction ever at the end of July, in an attempt to raise $115 billion.  Needless to say (but I’ll say it anyway), it was imperative for the money raising efforts of the U.S. government that these auctions go well.

They didn’t, at least not initially.  During the first two days, the sale of debt with 2 and 5 year maturities failed to attract much demand and this ugly news was broadcast far and wide by the financial media.  This must have been fairly alarming to Fed and Treasury officials although it was very likely anticipated.  After all, the Fed announced its intentions in March to use freshly printed dollars to buy up to $300 billion in newly issued treasury debt over a 6 month period in anticipation of poor turnout at these affairs.  Well its this kind of policy that makes no one want to come to your party in the first place.   The proof of this was not long in coming, as on the same day of this announcement, March 18^th, the US dollar had its 3^rd steepest down day ever (-2.9%) representing its biggest drop since 1985.  The Chinese, the biggest lender to the US by far, have become increasingly vocal in expressing their displeasure over this policy leaning ever since.

OF TREASURY AUCTIONS, ROCKS AND HARD PLACES — The Falcon Post The Falcon Post

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