Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
More Downside Ahead for Gold and Silver - 31st Oct 14
QE Is Dead, Now You Tell Me What You Know - 31st Oct 14
Welcome to the World of Volatility - 31st Oct 14
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Fed Traders Buying Billions in U.S. Debt, Nation Risks Credit Downgrade

Interest-Rates / US Debt Jan 22, 2011 - 02:22 PM GMT

By: Global_Research

Interest-Rates

Fed Traders Buying Billions in U.S. Debt, Nation Risks Credit DowngradeFed Traders Buying Billions in U.S. Debt, Nation Risks Credit Downgrade

At the same time, Moody's and Standard & Poor's warned the triple-A sovereign debt rating of the United States is in jeopardy of being downgraded if there continues to be a deterioration in the negative fundamentals of the United States, including the trillion-dollar federal-budget deficits President Obama has run in the last two years.


Unfortunately, this is not the first time since the current economic downturn began that the Fed has bought U.S. debt, and it may not be the last time.

Fed bought $1.7 trillion in U.S. mortgage, Treasury debt in 2009-2010

In March 2009, the Federal Reserve had announced terminating an earlier plan under which the Fed had purchased $1.25 trillion in federal government mortgage-backed securities issued by Freddie Mae and Fannie Mac.

Then, in October 2009, the Fed terminated an earlier program that had purchased an additional $300 billion in U.S. Treasury debt, making the total Fed purchase of U.S. debt in 2009 total an excess of $1.5 trillion.

All total, the Wall Street Journal estimated the Fed ended up buying $1.7 trillion in mortgage and Treasury debt in 2009 before the program was discontinued.

That was considering the first round of Quantitative Easing Round, now commonly known as QE1.

The strategy of the federal government buying its own debt involves an effort to keep interest rates low to keep the costs low in borrowing to pay interest on the debt and borrowing even more to pay for each year's trillion-dollar federal-budget deficit under Obama.

In the process of buying federal debt, the balance sheet of the Federal Reserve has gone from under $1trillion in 2008 to approximately $2.3 trillion today, according to the Wall Street Journal.

Having the Fed buy federal debt involves a process economists typically call "monetizing the debt," in that the Federal Reserve essentially is printing money to purchase U.S. debt in a process most Americans would understand as using the MasterCard to pay the Visa bill.

"Out of nearly $2.1 trillion of net issuance across the Treasury, Agencies and MBS [Mortgage-Backed Securities] markets from June 2008-9, the Federal Reserve has accounted for nearly 40 percent of the total demand, buying more than every foreign government combined," Jon Harooni, a senior analyst at Glenhill Capital, a hedge fund in New York City, and Ravi Tanuku, a research analyst at Fred Alger Management, an investment firm in New York City, wrote in October 2009, criticizing the policy being implemented by Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner.

"It is not much of a stretch to say the Fed has become the entire mortgage market; it has purchased nearly $500 billion of MBS securities during a period where there was only $350 billion issued," they continued.

"Looking at the first seven calendar months of 2009 yields similarly startling results: Of the total $1.1 trillion of net issuance across these markets, the Fed has purchased $861 billion or almost 80 percent."

China irate

International Business Editor Ambrose Evans-Pritchard, writing in the Telegraph in London, reported that China was irate because the Fed's QE2 policy "risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal 'bancor' along the lines proposed by John Maynard Keynes in the 1940s."

"The continued and drastic U.S. dollar depreciation recently has led countries including Japan, South Korea and Thailand to intervene in the currency market, intensifying a 'currency war,'" China's commerce ministry said Monday. "In the mid-term, the U.S. dollar will continue to weaken and gaming between major currencies will escalate."

The G20 summit meeting in London in April 2009 took an important step to create a new one-world currency through the International Monetary Fund that is designed to replace the dollar as the world's foreign-exchange reserve currency of choice.

Point 19 of the final communique from the G20 summit in London on April 2, 2009, specified that, "We have agreed to support a general SDR which will inject $250 billion into the world economy and increase global liquidity," taking the first steps forward to implement China's proposal that Special Drawing Rights at the International Monetary Fund should be created as a foreign-exchange currency to replace the dollar.

SDRs are international reserve assets that are calculated by the IMF in a basket of major currencies that are allocated to the IMF 185 member nation-states in relation to the capital, largely in gold or widely accepted foreign currencies that the IMF member nation-states have on deposit with the IMF.

In the short-run, the Fed's QE2 policy has boosted the Dow to a two-year high, trading last week over 11,500.

Unfortunately, any stimulus to the stock market will be temporary as QE2 merely creates a new bubble, much as the Fed helped create the mortgage bubble by keeping interest rates at 1 percent during 2003-2004.

Inevitably, the Fed will follow QE2 with QE3. Still, at some point the ability of the Fed to purchase U.S. debt will have to come to an end. So far, neither QE2 nor QE3 has done much to improve either employment prospects or the housing market.

Jerome R. Corsi received a Ph.D. from Harvard University in political science in 1972. He is the author of the New York Times bestselling books The Obama Nation: Leftist Politics and the Cult of Personality.  Dr. Corsi is a Senior Managing Director in the Financial Services Group at Gilford Securities as well as a senior staff writer for WorldNetDaily.com.

The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect Gilford Securities Incorporated's views, opinions, positions or strategies. Gilford Securities Incorporated makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information expressed herein  and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.

Jerome Corsi's RED ALERT is your weekly, global financial strategies newsletter.

JeromeCorsi.com

Jerome Corsi is a frequent contributor to Global Research.  Global Research Articles by Jerome Corsi

© Copyright Jerome Corsi , Global Research, 2011

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Rick
22 Jan 11, 20:15
Fed QE2: Thanks But No Thanks!

The Fed is not doing the nation any favors whatsoever by purchasing U.S. debt as the taxpayers will ultimately be the ones who will have to pay the piper.


Glenn
23 Jan 11, 12:35
FED QE forever....until it is over

The FED is continuing to kick the can down the road, what else can it possibly do? QE will continue until the overseas buyers find another game in town. Why shouldn't Bernanke print money; a) the Government needs it and b) there are buyers for these trash dollars and c) the economy would crash and burn if Bernanke could stop printing.

Although Bernanke might be having nightmares about the day of reckoning, he also must be quite smug with himself that there are still buyers for our trash dollars/treasuries. I would be laughing hysterically if it was not so horrifying in the long term.

See my silly cartoon at:

http://www.youtube.com/watch?v=lZMjVACh978


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014