http://www.zerohedge.com/article/five-sigma-evidence-japanese-repatriation-meet-country-sold-world
Notes:
1) in the world of statistics and probabilities, a five standard deviation event is extremely rare--an outlier with 0.xxxxxxx1% likelihood, with x = a lot of zero's. I'm being mathematically blunt to make a point.
2) the Japanese Central bank will no longer be buying foreign sovereign bonds (including US Treasuries) as they will be selling assets from their reserves in order to fund the reconstruction of their country after the earthquake, tsunami, and nuclear meltdown disasters.
3) Japanese selling (vs. buying) of US Treasury bonds (they hold approximately $900 billion) will put selling pressure on US Treasuries, which will reduce demand for said bonds, driving yields and interest rates up.
4) item (3) above will undermine the Fed's QE program, which was implemented to reduce interest rates in the US. Rising rates will be exacerbated when the Fed stops monetizing US Treasury debt in June.
4) Steve Liesman, the government shill on CNBC, will deny all of the aforementioned.
Thursday, April 21, 2011
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Hi, when you talk about the Fed monetizing US debt in June, what does that mean? Can you please explain further?
ReplyDeleteActually, the Fed has been monetizing US Treasury bonds since the bank bailouts in 2008, post-Lehman collapse. Monetizing debt means the Fed is the buyer of last resort of US Treasury bonds, because no other bond buyers are stepping up. The yields are too low to compensate for the perceived rising risk of owning US Treasuries. Since there is no demand for the bonds, the Fed is forced to buy them. With quantitative easing (QE 2.0) ending June 30, 2011, the Fed is hoping there will be demand for said US Treasury bonds thereafter. If not, yields (interest rates) will rise--which is what the Fed does NOT want. If demand remains tepid, and interest rates rise, the Fed will be forced to implement another round of debt monetization, which props up bond prices (and simultaneously suppresses interest rates). The problem is QE requires additional printing of USDollars out of thin air to buy said bonds, and this debases the USDollar, which eventually causes long-term bond yields to rise, as the bond market anticipates inflation due to a rising monetary base. QE is a short-term fix that causes long-term problems (rising interest rates).
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