Zerohedge published a chart today produced by Barclays, which evidences that the Fed has purchased 91% of all gross 20-30 year treasury issues , 64% of all 8-10 year t-bonds, and 51% of all 6-8 year t-bonds since operation twist began. Please go back and read that again.
As we have stressed repeatedly here on SilverDoctors, WHO DO YOU THINK WILL POSSIBLY PURCHASE just the $1.4 Trillion worth of new treasury debt for this fiscal year, NOT TO MENTION THE MASSIVE ROLLOVER VOLUME!!! We're talking nearly 40 billion a day folks!
Who would even possibly purchase $100 billion + a week worth of US treasury bonds!?!
China? They've been attempting to extricate themselves from the dollar since at least 2007!
Japan? They're liquidating US treasuries to help fund massive rebuilding required after last March's tsunami!
Europe? You're kidding me, right? Europe has spent 2 years trying to scrape together $80 billion to bail out Greece, you think they have the excess surplus to throw that at US T-bonds weekly?
The UK? They hold a total of $421 billion in US treasuries. That's roughly a month's worth of issuance at current rates.
THE ONLY ENTITY CAPABLE OF 'PURCHASING' TREASURY BONDS IN SUFFICIENT VOLUME TO EQUAL ISSUANCE IS THE FEDERAL RESERVE. PERIOD, EXCLAMATION POINT.
Now do you understand why QE MUST Continue to Infinity....AND BEYOND!!! ??
As Barclays showed a few days back, under Twist, the Fed has monetized virtually all, and specifically 91% of all gross issuance in the 20-30 year maturity bucket. In other words, Warsh is absolutely spot on, and once again we are left with an artificial market in which it is only the Fed that defines the UST curve shape by molding the long end. What happens when Twist ends? Will the 30 Year collapse? What happens when there is no explicit back stop to the long end?
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