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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (72805)	12/26/2007 8:07:29 AM
From: John McCarthy	Read Replies (2) \| Respond to of 116555

Hi Mike >>>>>>>>>>>>>>>>>>>>>>>>>> This is simply not true. The Fed can monetize government debt and peg long term rates, by purchasing government debt with freshly printed money, in effect raising the money supply while simultaneously holding long term rates steady. I believe they will do that, if they are not already doing so. In fact, IMO should for example the Chinese ever want to divest its huge holdings of US government debt, they probably will not do it in the open market, as it would not be able to absorb that much paper, but the Fed will be the buyer in a transaction that will only be reported with a several day delay. >>>>>>>>>>>>>>>>>>>>>>>>>> I is slow and stupid and wanna make sure I understand the thrust of this. (a)Before we start we have to agree that the US Treasury needs about 2 billion a day on balance to meet Fed Expenditure needs. So along the way it sells notes to accomadate this need. (b) Week One: 2 Yr and 10 Yr Tresury Notes are X% and Y% (c) Week Two: China wants to bail out on approx $450 billion in Tres Notes and the FED buys them giving the Chinese $450 of freshly printed dollars (d) Week Three: Everyone finds out about (c) (e) Week Four: The US Tresury comes to market to sell 10 billion in new notes made up of 2 Yr and 10 Yr notes. The thrust of what your saying is that the potential buyers of these notes - in terms of the interest rate that they would require - would be the same as the buyers in (b). Is this what you are saying? regards, John