I would like to thank you for the factual charts, etc. that you post.
This one I get but I have to admit sometimes I don't see the import of some of what you post. I wonder if there are others out there who are not getting all of it? Do you think that maybe you could add an explanation of what it means for those of us who are not as sharp in figuring these things out?
Usually I don't post a full explanation due to time constraints, hoping that folks will simply ask questions if they don't understand. Alas... I think that pride gets in the way of folks asking sometimes.
In any case, explaining Treasury auctions and Open Market Operations (OMO) isn't the easiest thing to do, mostly because of the assumptions and simplifications that most people make about money in the first place. As simple as this sounds, I've come to the conclusion that most people actually believe that The Rich have a lot of money, and we're talking the liquid kind. It's inconceivable to most people that The Rich could be as broke as them, just on a far larger scale. Yes, there's an accumulation of capital, but that doesn't have to mean that it's fungible or that there's not a note on it.
Take Russia during the revolution--The Poor probably really thought they were going to BE rich as soon as they killed or otherwise subjugated The Rich and took possession of their stuff. They were THAT STUPID. And then they... died... like... flies. Why? Their own inability to control and balance anything of their own economy. They NEVER understood that their own class envy was being used by some truly rotten folks to take over the whole country. Of course, in the end, the middle-management killers themselves became the victims just as in the French Revolution. And then the purges of Stalin. When enough millions had died to rebalance resource and productivity with population, things stabilized to the casual non-Russian observer viewing from outside the fences.
Back to the Treasury auction results and the Federal Reserve POMO (Permanent Open Market Operations) page... uhh... where to start? In these particular circumstances, the government hasn't been collecting enough tax receipts and revenues to actually pay all of the payables. Therefore, the Treasury has been stuck selling bonds to make up the difference. They're literally asking investors with liquidity to write them a real check from an account with "live" funds for which they'll issue a promisory note that pays a coupon (interest). Now, it's not just any investor that's going to bid on those--it's going to be a much higher class than somebody wanting to get a $5,000 CD paying 3.75%. I don't want to get into "Primary Dealers" and all of that, though...
Anyhow, it's not a good thing when nobody will buy your debt. That is, when nobody will give you a loan to carry you through until payday. The government DOES have to make timely payouts of real funds to folks on Social Security, Welfare, Medicare, Medicaid, Defense and a bunch of other stuff. Those first four items took up nearly two thirds of the $2.8 trillion per year budget. Try to imagine what would happen if a slew of Social Security checks did NOT go out at all... ever again. Not pretty. VERY not pretty. So, they've been selling a lot of debt, which is to say that they've been asking for an awful lot of loans.
So many here would say in one (often rude) way or another: just tax the rich! In point of fact, you're not really taxing The Rich... you're taxing profitable activities. The bulk of The Rich's money is invested in companies that we're all employees of or connected to in some other fashion economically. So... what really happens when you tax The Rich is that the added cost just goes into the cost buildup for the items that the profitable activities are producing, which naturally gets passed on to all consumers one way or another. Dammit.
In any case, we've been relying on China, Japan, Russia, Oil States and a few others to "buy" our public debt for awhile now. They've been doing it for a few reasons, not the least of which is to keep the system from crashing. They are, however, getting to the point where their faith in the system continuing ad nauseum is wearing a bit thin. As such, there has been less and less interest in our public debt auctions. The "Bid-to-Cover" is in its own way an indicator of that, but it's still not an easy thing to understand for most folks. Anyhow, the 5-year note auction the day before was a true failure which might have caused further auction failures due to a loss of confidence on the part of investors. That would have been very, VERY bad. So... the Fed must have made a deal with the Primary Dealers to basically bid for about $5 billion worth of the issue that can be seen through those two documents, and the fact that it was done steathily threw off the worried watchers--"All is Well!"
If the Fed buys treasuries, it's essentially printing money and increasing the money supply without an accompanying increase of capital to back it up with. This dilutes the value or "debases" a currency with respect to other currencies and usually causes a concurrent increase in the price of imported goods or services. Actually, most nations within our current global economic system have been applying "quantitative easing" in some kind of balance and that's why you haven't been seeing things REALLY blow up yet. Except in Zimbabwe, which has been an experiment in turbo-charged money printing. Argentina has been another interesting failure.
