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If the Fed Doesn't Buy Treasuries Who Will?


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2013 Jun 25, 10:22am   3,477 views  24 comments

by smaulgld   ➕follow (4)   💰tip   ignore  

The wealth effect from real estate and stock markets can only take the economy so far. When they crash what next? These are the dangers of a consumption based economy

Podcast: http://www.youtube.com/embed/2sQwZx5XG1A

#housing

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1   smaulgld   2013 Jun 25, 10:42pm  

GDP down! Taper much?

2   tatupu70   2013 Jun 25, 10:59pm  

smaulgld says

These are the dangers of a consumption based economy

What else is there? People produce to meet consumption needs.

3   smaulgld   2013 Jun 25, 11:25pm  

consumption desires are limitless-there needs to be the ability to pay for consumption and that is done with savings and production.

If consumption falls in a consumption based economy there is nothing left

4   tatupu70   2013 Jun 25, 11:29pm  

smaulgld says

consumption desires are limitless-there needs to be the ability to pay for consumption and that is done with savings and production.

If consumption falls in a consumption based economy there is nothing left

All economies are consumption based.

I think you're really trying to say that we need to reduce our trade deficit--which I agree with.

5   smaulgld   2013 Jun 25, 11:48pm  

I mean that consumption should be based on savings and production, not on borrowing excessive amounts.

The trade deficit is a good example of consuming more than producing.

The answer to fixing the economy isnt to buy more stuff with borrowed or printed money

6   tatupu70   2013 Jun 26, 12:07am  

smaulgld says

The answer to fixing the economy isnt to buy more stuff with borrowed or printed money

Yep--the answer is to reduce the wealth inequality.

7   maxweber21   2013 Jun 26, 12:09am  

Nobody else.

Who buys Treasuries? My understanding is the FRB buys the majority. Of course, their money/debt is printed out of thin air and then "loaned" to the member banks at next to nothing; so, they can buy any amount - they can just add more "money" debt into their computer and "buy" the notes. They print the FRN's.

Who else? Clearly the value of these is being rapidly diluted by the above scheme. So, nobody else (with sense and good alternative options) would buy. Obviously China and many others are working hard to get off the dollar.

In short, when others say "I'm out" then FRB is left to buy the bonds. They print debt. It goes into major investment banks who put it into equities etc.

Hey, sounds a lot like what has happened the last year or so. Well, take it to its logical conclusion... dollar continues to be diluted.

Effectively, anyone holding dollars is robbed as money/debt becomes deposited into investment banks and their leading leveragers.

Logically, everyone else will continue to try to divorce from the dollar. This is a FRN printing scheme where only the printers (those who add debt numbers into their computer) win. All the rest of us lose.

If you can't buy a farm for $1T then you wouldn't sell yours for anything less than $1T. A decade ago I would have used $1B and a decade before that, $1M. 50 years before that, $1K. 100 years before that? Maybe $100. And $100 for 250 years ago. and earlier. In a decade, we'll be talking about $100T's. That's the range of the debt and other "big" accounts.

Bye bye FRNs. US Gov is on a precipice. What can they sell after Treasuries? What will people buy for gold from the US politicians?

8   maxweber21   2013 Jun 26, 12:22am  

Wow. I was wrong. FRB is out too. Looks like retail customers jumped in... gestaldt intelligence? Lemmings? Bad investment advisors?

-- CNBC article "What is a "Household" and why are they buying treasuries?"

"The reality, however, is slightly different.” The demand among average investors has swelled so much, in fact, that they bought more Treasurys in the first quarter than foreigners and the Fed combined. Households picked up about $170 billion in the low-yielding government debt during the quarter, while foreigners increased their holdings by $110 billion. The Fed, meanwhile, actually slightly decreased its net holdings"

usinflationcalculator.com says dollar value loss was 2.1% 2011 to 2012. Treasury.gov says 1 yr tbill is at 0.14%. Don't even track inflation until 10 yr note. Worse yet, actual inflation for consumer goods ex-housing is surely over 10% and closed to 20% for the average working family.

So, in conclusion, either retail customers are being duped or they are awash in cash and see no good investment options. Wow.

9   maxweber21   2013 Jun 26, 12:24am  

shadowstats shows YoY inflation at 5% using pre-1990 CPI formula. I think that includes housing and other large assets which don't even apply to many Americans.

10   maxweber21   2013 Jun 26, 12:27am  

Plot thickens....

"

getthefedout | Jun 8, 2012 03:37 PM ET

The Household Sector is actually just a catch-all category. It represents the buyers left over who can’t be slotted into the other group headings. For most categories of financial assets and liabilities, the values for the Household Sector are calculated as residuals. That is, amounts held or owed by the other sectors are subtracted from known totals, and the remainders are assumed to be the amounts held or owed by the Household Sector. To quote directly from the Flow of Funds Guide, “For example, the amounts of Treasury securities held by all other sectors, obtained from asset data reported by the companies or institutions themselves, are subtracted from total Treasury securities outstanding, obtained from the Monthly Treasury Statement of Receipts and Outlays of the United States Government and the balance is assigned to the household sector.” (Emphasis ours) So to answer the question - who is the Household Sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.

SPROTT ASSET MGT LP 2009"

11   smaulgld   2013 Jun 26, 12:33am  

A start to reducing wealth inequality is to stop QE which gives banks corporations and wealthy individuals an unfair advantage by giving extremely low interest loans so they can buy assets at low costs

12   tatupu70   2013 Jun 26, 12:45am  

smaulgld says

A start to reducing wealth inequality is to stop QE which gives banks corporations and wealthy individuals an unfair advantage by giving extremely low interest loans so they can buy assets at low costs

Not really. Inequality has been rising since Reagan--it has much more to do with tax policy than QE.

13   tatupu70   2013 Jun 26, 12:46am  

maxweber21 says

Worse yet, actual inflation for consumer goods ex-housing is surely over 10% and closed to 20% for the average working family.

You've got to be kidding, right?

maxweber21 says

shadowstats shows YoY inflation at 5% using pre-1990 CPI formula. I think that includes housing and other large assets which don't even apply to many Americans.

Oh, you're a shadowstats guy. Now the earlier comment makes sense.

14   smaulgld   2013 Jun 26, 12:48am  

True
tax policy may play a role in making some people wealthier if they get tax breaks but tax policy doesnt make the poor poorer if they dont pay taxes
Eliminating all deductions and credits would help
Lower rates for all and no need to fill out forms
Cant solve taxes without solving spending- we do too much of both and the money ends up in the wrong hands

15   tatupu70   2013 Jun 26, 1:16am  

smaulgld says

tax policy may play a role in making some people wealthier if they get tax breaks but tax policy doesnt make the poor poorer if they dont pay taxes

Eliminating all deductions and credits would help

Lower rates for all and no need to fill out forms

Cant solve taxes without solving spending- we do too much of both and the money ends up in the wrong hands

We certainly can solve taxes independent of spending. They are two completely separate issues.

Eliminating all deductions and credits would not help--eliminating some while keeping others, that might help. But most important is to tax capital gains and dividends at least as highly as income. And make income tax more progressive. That would be a start.

16   David Losh   2013 Jun 26, 1:21am  

Podcast, deflation, Real Estate is done, Michael?

17   mell   2013 Jun 26, 1:29am  

tatupu70 says

You've got to be kidding, right?

Factoring in the health care premium/copayment hikes over the last year, I easily reach inflation around 20%. Even if you factor this in as a one-off year you have to average the cost over the years and that easily leaves you north of 5%.

18   tatupu70   2013 Jun 26, 1:39am  

mell says

Factoring in the health care premium/copayment hikes over the last year, I easily reach inflation around 20%. Even if you factor this in as a one-off year you have to average the cost over the years and that easily leaves you north of 5%.

I'm not sure I understand your point. Health care costs are rising at a rate faster than inflation, I agree. And electronics are rising at a rate much slower than inflation. By definition, the prices of some things will rise faster than the inflation rate and some slower.

But when you average the price increases of everything it equals the inflation rate.

19   mell   2013 Jun 26, 1:53am  

tatupu70 says

mell says

Factoring in the health care premium/copayment hikes over the last year, I easily reach inflation around 20%. Even if you factor this in as a one-off year you have to average the cost over the years and that easily leaves you north of 5%.

I'm not sure I understand your point. Health care costs are rising at a rate faster than inflation, I agree. And electronics are rising at a rate much slower than inflation. By defintion, the prices of some things will rise faster than the inflation rate.

But when you average the price increases of everything it equals the inflation rate.

Sure, but I think the truth is somewhere in between the government numbers and highly exaggerated ones and by my calculations anywhere between 3%-5% (depending on your circumstances) are closer to the truth IMO, that's all I'm saying, And for me the (and a lot of other people in CA) the hikes in healthcare premiums were extreme, so north of 5% for those affected sounds right to me. I cannot reach whatever the 2% the government puts out no matter how I slice and dice it. Maybe I could if I bought a bunch of smart phones, laptops and tablets over the years like they project the average American does, but I don't (even though I'm in tech). But I have no other choice than to keep buying healthy food and paying the rising healthcare premiums for my family (and I'm already riding the bike 6 miles to work and back to avoid paying $4/gallon).

20   David Losh   2013 Jun 26, 11:38am  

I had a chance to look at your website more closely, and you aren't Michael Surkan who used a similar site, and podcasts. to further his discussions about deflation.

He got a lot of grief for his views when he started in 2006, but now 7years later we are hearing the same Fed warning about deflation in quiet tones.

21   smaulgld   2013 Jun 27, 7:51pm  

Deflation clearly would have been the immediate and natural economic reaction in 2007/8
But for bailouts, stimulus and endless QE we would have already gone through a deflationary recession/depression for a couple of years as the economy restructured
Now we have five years of propping up existing institutions that would have failed - gm and banks and are propping up new speculative ventures -tesla, wind and solar companies
Well never know what economy might have emerged if not for the stimulus bailouts and QE but we wouldnt have a housing bubble!

22   Blurtman   2013 Jun 27, 11:58pm  

I'll buy Treasuries if the 10 year goes to 6%.

23   smaulgld   2013 Jun 28, 12:29am  

I would too as long as inflation is below that number

24   smaulgld   2013 Jun 28, 12:30am  

and they didnt seem to be heading any higher...

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