FRAUD: Federal Reserve Is Selling Put Options On Treasury Bonds To Drive Down Yields

The enclosed video is a long, but good explanation of how the Fed is committing fraud, causing the US government to default on its debt.  The Fed is selling put options against its own debt in order to suppress long-expiry US Treasury bond yields.  Keeping interest rates low is necessary to keep the government's borrowing costs low, and to stimulate the economy, as low rates encourage borrowing and consumption.  Manipulating markets is not only fraudulent, it is also perilous to global financial market stability.  The Fed is taking the wrong side of the bet, hoping interest rates won't rise in the future.  If I was 99% certain the US government will default on its obligations, I am 99.9% certain now after watching the video.

Tragically, this manipulation of interest rates will backfire, causing yields at the long end of the curve to eventually soar.  The Fed can control short-term interest rates (they are currently pinning them down to nearly zero), but cannot control longer-dated bond yields, which move in tandem with market expectations on inflation.  In other words, as inflation rises, so do bond yields, and inversely, bond prices drop.  Rising bond yields (interest rates) will result in the US government defaulting on its debt, which will cause the global financial system to collapse.

Banks became insolvent after making outsized bets that turned sour.  They took on too much leverage, and needed a bailout in 2008 in order to avert bankruptcy.  AIG similarly was over-leveraged and under-capitalized based on the amount of default insurance they wrote (in the form of credit default swaps).  Many hedge funds were liquidated due to insufficient hedging.

Hedging infers risk mitigation against a bet that goes the wrong way.  Many hedge funds, the too-big-to-fail banks, and AIG were insufficiently hedged.  In fact, they INCREASED their risk profile, instead of decreasing their exposure.  Instead of hedging, they levered up to obscene levels, which increased their returns when they bet right, but caused massive losses when they bet wrong.  Not only were the players in the casino losing, but the casinos themselves on Wall Street were losing big, betting on a perpetually rising housing market.

The bank bailouts merely transferred the toxic balance sheets of the failed banks into the Fed's balance sheet, which meant the Fed was now over-leveraged.  Just like home prices can't appreciate forever, interest rates can't drop forever.  And when interest rates do rise, the debt the Fed carries will implode, much like mortgage-backed securities did in 2008.  But this time, there will nobody left standing to bail out the Fed.

http://www.youtube.com/watch?v=ZnZnkaq8Nf8&feature=player_embedded