Where Did The More Than $500 Billion Come From?

The Market Ticker ^ | 12/25/09 | Karl Denninger

Posted on Saturday, December 26, 2009 9:09:51 AM by FromLori

Sprott Asset Management has "pulled forward" something I intended to cover in my "year end review" Ticker but since he's put it out there I think I need to cover it now:

As a thought experiment, we separated all the various US Treasury owners and asked our readers whether each group could afford to increase their 2009 treasury purchases by 200%. In the end, we surmised that most groups couldn’t, and prepared our readers for the worst.

Almost seven months later, however, nothing particularly bad has happened on the US debt front. There have been no failed auctions, no sovereign defaults, no downgrades of debt and no significant increase in rates…not so much as a hiccup in the treasury market. Knowing what we discussed this past June, we have to ask how it all went so smoothly. After all – it was pretty obvious there wasn’t enough buying power to satisfy the auctions under ‘normal’ circumstances.

In the latest Treasury Bulletin published in December 2009, ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009.

....

To our surprise, the only group to actually substantially increase their purchases in 2009 is defined in the Federal Reserve Flow of Funds Report as the "Household Sector". This category of buyers bought $15 billion worth of treasuries in 2008, but by Q3 2009 had purchased a whopping $528.7 billion worth. At the end of Q3 this Household Sector category now owns more treasuries than the Federal Reserve itself.8

If you believe that you're more gullible than I.

Here's why.

The 2009/3Q Z1 shows an alleged annualized inbound (purchase) flow rate for "households" of $742.9 billion. This was exceeded only by the 1Q 2009 number of 1066.5, which in the context of the stock market meltdown makes perfect sense. Likewise, in 2008 Q2/Q3 when the market was falling apart flow rates into Treasuries by households were very heavy as well.

Before you write this off and say "oh but people still are scared and thus not willing to invest in the stock market" you better look below at the Money Market Mutual Fund holdings! In Q1, Q3 and Q4 of last year this segment saw massive buying of Treasuries. Not so this year - Money Market funds have been NET SELLERS all year long, and in Q4 the rate of selling has dramatically increased, mostly as a consequence of broker/dealer sales.

This, of course, is perfectly consistent with the stock market rising - money flows out of Money Market funds and into equities, thus causing Money Markets to be net sellers.

So how is it that "Households" allegedly are (individually, via Treasury Direct?) buying Treasuries at a $700+ billion annualized rate when the other categories under which "households" transact in the markets - via money market accounts, mutual funds and similar instruments - are showing either small increases or significant net sales?

There are other oddities in the Z1 as well related to net borrowing and lending - one of the more important being the fact that GSEs suddenly became negative net borrowers to the tune of more than a half-trillion dollars in the second and third quarter! Wait - they're paying down outstanding lending commitments? I thought The Fed was absorbing all their net new issue and Treasury was backstopping their operating costs? Hmmmm...... is someone trying to de-lever due to knowledge of "fun times" to come in 2010? Perhaps Timmy knows too, eh?

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.

Hint: Treasury believes those losses are going to be massive, and so do the GSEs, judging not by statements but by their behavior.

Commercial banks are neither lending OR borrowing, and after what looked to be a let-up in their divestment in the 2nd Quarter it has picked up bigtime once again in their third. Again: What do they know that we're not being told about their losses?

I have previously opined (in October) that it is more than a bit unlikely that "Caribbean Banking Centers" have the GDP (or sovereign wealth) to support more than $200 billion in Treasury Security acquisitions:

Who is the real holder of all the Treasuries in "Caribbean Banking Centers"? You don't actually expect me to believe that little islands like Antigua and Grand Cayman have the sovereign wealth to support holding nearly two hundred billion dollars of Treasuries, do you? Is that a vehicle by which back-door monetization can (and has) taken place? Germany, with a real economy and government, by contrast holds a mere $55 billion dollars, and even Russia (and Hong Kong!) have only $121 billion.

Yeah.

Now we have more than $500 billion in further discrepancies that make absolutely no sense, especially when one looks at the rest of the patterns in the Fed's most-recent Z1 release.

This, of course, begs the obvious question:

Who really "bought" that Treasury debt - and did it really "subscribe"?

Or is the truth that there were in fact no buyers for upwards of half of the total Treasury issue in the last year and it was instead monetized - one third openly via Federal Reserve "open market" purchase, and the other two-thirds via "covert" or "stealth" means, complete with bucketing the alleged "buyers" into categories in The Fed's and Treasury's data releases?
TOPICS: Government; News/Current Events
KEYWORDS: debt; denninger; economy; fed; fedmadoff; fedponzi; monetization; outofcontrolfed; ponzi

1 posted on Saturday, December 26, 2009 9:09:52 AM by FromLori
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To: FromLori; perchprism; LomanBill; JDoutrider; tired1; Maine Mariner; demsux; April Lexington; ...

ping related

http://www.zerohedge.com/article/are-hedge-funds-responsible-missing-half-trillion-treasury-purchases

http://www.industrymailout.com/Industry/View.aspx?id=182081&q=173576285&qz=d2a48f

2 posted on Saturday, December 26, 2009 9:10:56 AM by FromLori (FromLori)
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To: FromLori

Interesting. Could it be that our friends at the Fed are cooking the books?

3 posted on Saturday, December 26, 2009 9:12:05 AM by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Lurker

Looks that way and check this out

http://www.zerohedge.com/article/brace-impact-2010-private-demand-us-fixed-income-has-increase-elevenfold-or-else

4 posted on Saturday, December 26, 2009 9:17:11 AM by FromLori (FromLori)
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To: FromLori

“This category of buyers bought $15 billion worth of treasuries in 2008, but by Q3 2009 had purchased a whopping $528.7 billion worth.”

Nothing to see here - move on.

5 posted on Saturday, December 26, 2009 9:23:21 AM by blackminorca
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To: Lurker; patton; hobbes1; neverdem

Wow.

Sobering.

China, Saudi Arabia.

China (used to ?) have that much money available - and the Chinese are notorious for being long-term planners. But this “back-door” purchasing doesn’t match with their very very public criticism of Obama’s public debts.

I don’t think the Saudi’s (or any group of il nationals) has the money either.

6 posted on Saturday, December 26, 2009 9:24:57 AM by Robert A. Cook, PE (I can only donate monthly, but socialists' ABBCNNBCBS continue to lie every day!)
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To: FromLori

7 posted on Saturday, December 26, 2009 9:29:26 AM by bannie
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To: FromLori
Drug Lord Pictures, Images and Photos

Gee, who has billions that needs to be laundered and has bank accounts in the Caymans?
8 posted on Saturday, December 26, 2009 9:30:10 AM by Snickering Hound
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To: FromLori

Very, very interesting. Thanks very much for posting, Lori. HOORAY Karl Denninger!

9 posted on Saturday, December 26, 2009 9:30:50 AM by PGalt
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To: FromLori

I’m ignorant, so help me out. Who is defined by the “Household Sector” ?

10 posted on Saturday, December 26, 2009 9:40:11 AM by PLMerite (Ride to the sound of the Guns - I'll probably need help.)
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To: FromLori
Or is the truth that there were in fact no buyers for upwards of half of the total Treasury issue in the last year and it was instead monetized ...

wow. Lord help us.
11 posted on Saturday, December 26, 2009 9:51:20 AM by TruthConquers (Delendae sunt publicae scholae)
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To: PLMerite

That is the problem. There is NO WAY U.S. households bought those treasuries. So, who bought them and how is the musings of this article.

And I believe we are all ignorant to all of what this corrupt, thieving FED has done.

12 posted on Saturday, December 26, 2009 9:54:35 AM by TruthConquers (Delendae sunt publicae scholae)
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To: FromLori

I read somewhere that it was mostly bought by banks. And then they can borrow against them and purchase more treasuries.

This is the way banks can re-capitalize quickly without issuing new offerings

13 posted on Saturday, December 26, 2009 9:55:50 AM by downwdims (It does not take a majority to prevail... but rather an irate, tireless minority)
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To: FromLori
Where Did The More Than $500 Billion Come From?

It came from Ubama's stash.
14 posted on Saturday, December 26, 2009 9:57:46 AM by Lancey Howard
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To: PLMerite

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.

http://www.industrymailout.com/Industry/View.aspx?id=182081&q=173576285&qz=d2a48f

15 posted on Saturday, December 26, 2009 10:06:14 AM by FromLori (FromLori)
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To: downwdims

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.

http://www.industrymailout.com/Industry/View.aspx?id=182081&q=173576285&qz=d2a48f

16 posted on Saturday, December 26, 2009 10:07:23 AM by FromLori (FromLori)
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To: FromLori

ping

17 posted on Saturday, December 26, 2009 11:29:37 AM by Jude in WV
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To: FromLori

2 months ago Beck said that they were monetizing the debt.
Enough said!

18 posted on Saturday, December 26, 2009 11:32:40 AM by DCmarcher-976453 (SARAH PALIN 2012)
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To: Lurker
re: our friends at the Fed are cooking the books?

Why would there be any reason to think they aren't? I know very little about the subject but seems to me the only source of information is the Fed, and they have every reason to make the numbers look as good as possible.

I am still wondering why we haven't heard more about who started the run on the financial system last year, just in time to grease the skids for an Obama win. I am as convinced as ever that the whole financial emergency was fake. There never was an emergency, or if there was it was drummed up to coincide with the election.

Time and again we see things happening that we have always been told would be disastrous, yet they happen and we move right along to the next one. Trillion dollar deficits, millions and millions of real estate foreclosures, federal take overs of large parts of the economy. The list goes on and on.

Isn't there a point at which something will have to give, and that will start the rapid unraveling of the whole system?
19 posted on Saturday, December 26, 2009 11:35:42 AM by jwparkerjr
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To: FromLori
Who really "bought" that Treasury debt - and did it really "subscribe"? Or is the truth that there were in fact no buyers for upwards of half of the total Treasury issue in the last year and it was instead monetized - one third openly via Federal Reserve "open market" purchase, and the other two-thirds via "covert" or "stealth" means, complete with bucketing the alleged "buyers" into categories in The Fed's and Treasury's data releases?

So we're keeping up the illusion by "buying" our own debt - with "made up" money? We're being bled dry...
20 posted on Saturday, December 26, 2009 11:47:39 AM by GOPJ (Journalists as BaghdadBobLite - Global Warming Scientists as ElmerGantry - what's happening?)
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To: jwparkerjr

bttt

21 posted on Saturday, December 26, 2009 11:57:15 AM by Chickensoup (We have the government we deserve.)
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To: jwparkerjr

I am convinced that the run on the banks was an October Surprise brought to us by the DNC Chicago Machine.

22 posted on Saturday, December 26, 2009 12:06:18 PM by BuckeyeTexan (Integrity, Honesty, Character, & Loyalty still matter)
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To: FromLori

Where did it come from? We printed it.

23 posted on Saturday, December 26, 2009 12:13:05 PM by BuckeyeTexan (Integrity, Honesty, Character, & Loyalty still matter)
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To: BuckeyeTexan

More likely brought to us via the consortium of hedge funds led by Quantum Groups (HQ’d in Curacao, which is not only in the Caribbean, but is a major oil refinery/storage/port utilized extensively by Chavez). However, IIRC, two major ones (Citadel and Magnastar)that do business w/Quantum are in Chicago and Evanston.

The Crisis was a globally organized September Surprise. We were targeted and taken out by a consortium of enemies. We have been occupied since November, 2008.

24 posted on Saturday, December 26, 2009 12:18:33 PM by reformedliberal
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To: BuckeyeTexan

Me too. But why hasn’t anyone looked into it and brought out the truth about the situation? I know why the MSM won’t, but there must be an investigative reporter out there who realizes the story could be a major contributor to a career in journalism.

At some point it’s going to be necessary to make the point to the MSM that the idea of free press includes an obligation to report ALL the news, not just the news that suits their purposes. I’ll readily admit I have no idea how to go about doing that, but somehow the ‘freedoms’ enjoyed by the press will have to be restricted until they understand the obligations that go along with the freedoms.

Sadly, the notion that for every freedom or liberty there’s a corresponding obligation and duty has been lost on today’s America.

25 posted on Saturday, December 26, 2009 12:23:04 PM by jwparkerjr
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To: reformedliberal

That’s a possibility too. But given that scenario, how does one explain the actions of Paulson, Bernanke, Timmy, etc. in threatening the banks to take the bailout money when some of them didn’t need or want it? I can’t believe that they were truly acting out of total fear of collapse. They were in on it, IMHO. Since the September/October Surprise, there’s been one emergency after another. Again, I think that’s more than Rhambo taking advantage of a crisis. I think they created the crisis and continue to do so. I’ll go one step further into conspiracy land ... maybe that’s why all of the “bad” stuff that the article mentions didn’t happen ... they might be in total control and therefore ahead of the curve.

26 posted on Saturday, December 26, 2009 12:39:55 PM by BuckeyeTexan (Integrity, Honesty, Character, & Loyalty still matter)
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To: jwparkerjr

Just like ACORN, this one will take a long time to unravel. I think someone’s looking into it but information is slow to leak. I don’t think the players are talking yet. They’re still too busy making money and bad decisions.

27 posted on Saturday, December 26, 2009 12:43:56 PM by BuckeyeTexan (Integrity, Honesty, Character, & Loyalty still matter)
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To: BuckeyeTexan

Well, I do think there are a lot of *them*, all in on the deal. Paulson, Bernanke, Geithner were at the top and either had to have known what the hedges were doing or had something to do with those events. The SEC was involved in an international investigation of hedge fund operations back 4-5 years ago. Just as with Madoff, they turned blind eyes.

They wanted to control the banks. Period. So, first the scare, then they demonized them to the world at large, then they demanded they take $$ and then, of course, they had control.

Maybe the bad things didn’t happen because they would have been a lot less bad then advertised, had the failing banks been allowed to fail. Maybe there was no crisis, just the contrived appearance of one. Sure, they are “ahead of the curve”. They designed the curve, controlled the timeline and have had one SOP: scream that the world is ending, enact draconian laws and regulations that involved them being the middle men for America’s money, taking more and more control of the formerly private sector, then taking credit for averting a *worse* crisis.

Follow the money. All the usual suspects have become even richer and more powerful. I no longer think these speculations are conspiracy theory. It isn’t a theory if it is actually happening.

28 posted on Saturday, December 26, 2009 2:01:40 PM by reformedliberal
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To: jwparkerjr

bob chapman, ex marine, theinternationalforecaster.com

29 posted on Saturday, December 26, 2009 2:24:00 PM by usshadley (Orwell was an Optimist)
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To: reformedliberal

Back when this started Ben Stein said something on Glenn Beck’s show about the hedge funds being responsible for this. At the time I looked into it and found some Senate notes where Chuck Grassley had introduced a bill to require that the hedge funds simply register with the SEC. That’s all he was asking. The bill when nowhere. Now why wouldn’t the government want to have an official, compiled list of the hedge funds operating in the U.S.? I remember thinking that it make easier to hide the money if there wasn’t an official list. So you’re probably right about that SEC investigation. It’s a controlled scam on the public.

30 posted on Sunday, December 27, 2009 1:16:05 AM by BuckeyeTexan (Integrity, Honesty, Character, & Loyalty still matter)
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To: NVDave
Or is the truth that there were in fact no buyers for upwards of half of the total Treasury issue in the last year and it was instead monetized - one third openly via Federal Reserve "open market" purchase, and the other two-thirds via "covert" or "stealth" means, complete with bucketing the alleged "buyers" into categories in The Fed's and Treasury's data releases?

We're keeping up the illusion by "buying" our own debt - with "made up" money?

Ping
31 posted on Sunday, December 27, 2009 6:23:41 AM by GOPJ (Journalists as BaghdadBobLite - Global Warming Scientists as ElmerGantry - what's happening?)
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To: sickoflibs

ping

32 posted on Sunday, December 27, 2009 8:30:43 AM by GOPJ (Journalists as BaghdadBobLite - Global Warming Scientists as ElmerGantry - what's happening?)
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To: FromLori; GOPJ
This looks very close to the other article you posted a link to:

Is it all just a Ponzi scheme?
33 posted on Sunday, December 27, 2009 11:44:04 AM by sickoflibs ( "It's not the taxes, the redistribution is spending you demand stupid")
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To: sickoflibs; FromLori

This one’s big, sickoflibs. It could bring the country down - no one’s even giving it lip service...

34 posted on Sunday, December 27, 2009 11:25:59 PM by GOPJ (Journalists as BaghdadBobLite - Global Warming Scientists as ElmerGantry - what's happening?)
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To: GOPJ

I don’t get it either people do not understand it or they want to stick their heads in the sand. Off and on I get comments that I post the most depressing news of anyone on site I am beginning to wonder if people are so overwhelmed they can’t handle reality.

35 posted on Sunday, December 27, 2009 11:59:24 PM by FromLori (FromLori)
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To: GOPJ

I pinged the other version she posted at that link to the list.

What that means is the federal government owes the federal reserve.

I still remember the days 1990-1993 when Bush I and Clinton were scared of the national debt and of bondholders/buyers driving up interest rates to kill the economy. But now the Federal Reserve is buying up treasuries to fund this massive spending and there seems to be no market reaction.

If there is any real recovery there will be inflation with it, even now food and energy are not cheap.

36 posted on Monday, December 28, 2009 12:00:21 AM by sickoflibs ( "It's not the taxes, the redistribution is spending you demand stupid")
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