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To: E_K_S who wrote (42290)	4/15/2011 3:37:27 PM
From: Spekulatius	Respond to of 78740

>>What is the possibility that the FED creates a new "Preferred" $US Treasury Bond that is backed by a basket of hard assets.<< What you decribe (issuing secured debt) would imply that US debt is not AAA any more, by the government's own admission. It is not going to happen. Thinking about the failed treasury thing, I agree with Ipsofacto that it's not likely to happen, at least not openly. If in a treasury auction there were no natural buyers, I assume that the treasury dealers (a dozen banks or so) would have to take on the inventory. They probably could do that for a while, since these auctions are for 20-30B$ or so, which is not much for a dozen banks, if they all play ball. The banks could keep them on their balance sheet (of course the FED would cooperate and borrow them the liquidity to do what is needed) until the end of their respective quarters, which is the only day, the balance sheet needs to look good <g>. Also,a failed auction for a set maturity could be smoothed out by selling short different maturities to get the same blend. So this naturally hedging that always occurs in these hyperliquid market will smooth out any "crater" in a specific set of treasuries that might occur. These things get interesting if some other entity starts to pile on a trade to trap those that go long/short the treasuries and/or these markets are not as liquid any more and hedging does not work. Then we should see interest curves that don't make any sense (with strange spikes and bumps at certain maturities) because those folks that tend to trade these things away are not willing or able to trade any more. If that happens, we will know (if we watch closely and get the correct information) that the jig is up and something big will blow up somewhere. The only thing left to do is sell everything and then some financials, especially the broker/dealers for treasuries. Don't know if it works out that way. I am in engineering and not an economist. If we build something we try to think through how something blows up (FMEA's) and we particular address feedback looks. I really wonder if those folks running these institutions and companies do the same thing or just hope and pray that it doesn't happen under their watch.

To: E_K_S who wrote (42290)	4/15/2011 5:17:24 PM
From: Dr. Ipsofacto	Read Replies (1) \| Respond to of 78740

EKS, Great idea. A preferred treasury backed by hard assets though I don't technically if it could still be called a bond. The fed gov owns plenty of unutilized assets. Land, gold, and mineral rights are all viable options. The gov owns ~700+ million acres and who knows how much gold sitting in Kentucky. I like your idea independently and outside of a tool to transition or soften a sovereign debt crisis. The Federal Reserve doesn't have the ability to issue US gov debt. The Treasury Department would have to create these collateralized preferred bonds and getting that done would almost certainly take an act of congress. Then your idea takes a spin cycle in political milieu of these United States. Some problems though. The value of these assets might not be enough to convince some it’s worth the risk. I haven't run the numbers but with all of our current debt the treasuries might be backed for less than pennies on the dollar?? I'm also not sure how I feel about China owning any of the physical US upon default. I think the solution might be not to default on our current debt. Dr.I