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Maximum Fraud in U.S. Treasuries Market

Articles & Blogs - US Commentary

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Spending as much time as I do writing about the Land of Fraud, I never thought I would see myself using the phrase “maximum fraud” to describe any U.S. market. Each time I thought I had witnessed the apex of human fraud, within a matter of weeks or perhaps months I would witness some even more extreme outrage.

One should never underestimate Federal Reserve Chairman B.S. Bernanke, however, when the subject turns to fraud and deceit. This is the same man who told the world (day after day) that the U.S. had a “Goldilocks economy”, where U.S. markets and house prices would keep going up forever – at the very peak of the made-in-Wall-Street U.S. housing bubble. This is the same man who then promised the world (again and again) that the U.S. economy would experience a “soft landing” after that gigantic bubble had already burst. This is the same man who has announced more “exit strategies” than Harry Houdini – with not one of them ever materializing.

Yet even the infamous “Helicopter Ben” Bernanke has outdone himself with his latest operations in the U.S. Treasuries market. For those who missed the news, foreign central banks (the largest holders of U.S. Treasuries) have been frantically dumping more Treasuries onto the market over the past four weeks than at any other time in U.S. history.

Those with even the tiniest understanding of supply/demand fundamentals understand how markets operate in such situations. When there is a sudden explosion of supply, the price buyers are willing to pay for that good plummets until enough new buyers enter the market to soak-up all of that excess supply.

So how far have U.S. Treasuries prices fallen during this “panic” in the U.S. Treasuries market? Zero. To comprehend the absolute absurdity of this situation requires adding one more piece of data to our scenario: U.S. Treasuries prices are currently at their highest level in history – despite the fact that the United States has never been less solvent.

Readers need to realize how a bond market works. Prices and yields (i.e. interest rates) move in a precisely opposite/inverse manner to each other. As yield goes up, bond prices decline in a precisely proportional manner (and vice versa). Given that yield is (supposedly) a function of risk, with the U.S. economy being less solvent than at any other time in history, this implies record-low prices for U.S. Treasuries – not all-time highs.

Realizing that many ordinary investors don’t understand the dynamics of the bond market, let me equate this situation to the world of equities with an analogy. Picture a hypothetical company with the world’s largest market-cap, which we’ll call “U.S. Treasuries Inc.”

The share price of U.S. Treasuries Inc. is sitting at an all-time high (and has been there for many months), despite the fact the company is teetering on bankruptcy. Suddenly, the largest shareholders of U.S. Treasuries Inc. all start simultaneously dumping more shares than at any other time in history. Anyone with even a modicum of market experience knows the inevitable consequence of such an event: the share-price would crash.

Understand what is directly implied here. For maximum supply to be dumped onto this market, while prices didn’t even budge slightly from all-time highs does not merely imply “high demand”. It necessarily implies infinite demand. Only where demand was literally “infinite” would we see sufficient buyers instantly materialize (at the highest prices in history) irrespective of how much new supply hit the market. And this did not simply occur over some anomalous one- or two-day period, but rather consistently for (at least) four solid weeks.

However, even if it was mathematically plausible for there to be infinite demand for U.S. Treasuries (which it is not), “infinite demand” is not a plausible explanation for what has transpired in the U.S. Treasuries market, since it is directly contradicted by other price data.

As a matter of unequivocal arithmetic, if there was infinite demand for U.S. Treasuries, yields for all maturities of U.S. Treasuries would be compressed to 0%. The fact that (even at the highest prices in history) these yields are not at 0% is absolute proof that there has never been anything close to infinite demand for U.S. Treasuries.

With that fact conclusively established, we can return to the mechanics of this market. U.S. Treasuries have plateaued at the highest prices in history. Indeed, with the yields for shorter-term maturities essentially at 0%, those Treasuries are already at their maximum theoretical price. Thus when we ask ourselves what would suddenly cause large numbers of new buyers to enter this market, we can answer that question with absolute certainty: significantly lower prices.

With much/most trading now assigned to the abominable trading algorithms, there is no possible scenario where near-infinite numbers of buyers for U.S. Treasuries could surface with zero decline in prices. To make these impossible parameters even more ludicrous, in the real world there are effectively zero buyers for U.S. dollar instruments – and infinite sellers.

China and Japan (two of the world’s top-5 economies) just announced they are phasing-out U.S. dollars from their bilateral trade. This is merely the latest in an endless series of bilateral and multilateral deals which are incrementally (but relentlessly) removing the U.S. dollar as the world’s “reserve currency”.

To date, these deals have already reduced the demand for U.S. dollars by $trillions per year. To focus on just the China/Japan deal, as an elementary reality of their new commercial arrangement, both of these nations need to hold more of each other’s currency – and less U.S. dollars. And this scenario is being repeated in one economy after another, all over the world.

Even beyond the fact that no other nations want any U.S. dollar instruments, we are confronted with the fact that there are no other (visible) buyers able to soak-up all these unwanted U.S. dollar instruments (including Treasuries). Most of the world’s largest economies are located in Europe, and what just finished happening there? The ECB conjured roughly $1 trillion out of thin air – to “lend” all that funny-money to various EU governments (to buy-up their own bonds) so that they were not immediately bankrupted by the economic terrorism being perpetrated in their debt markets by the Wall Street Vampires.

China, the world’s new economic juggernaut, has been dumping their Treasuries for over a year now. Japan’s economy requires every spare yen it can muster for economic reconstruction following the horrific disasters it suffered. And in most of the rest of the world’s economies governments are more likely to use extra dollars to subsidize exploding food prices (to prevent riots in the streets) rather than squandering their precious currency reserves buying worthless U.S. paper.

We have a seemingly intractable paradox here. In the real world there is essentially zero demand for U.S. Treasuries, while we have the recent transactions in the Treasuries market directly implying infinite demand. Fortunately we have the wisdom of the legendary Sherlock Holmes to guide us in resolving such intellectual quandries:

When you eliminate the impossible, whatever remains (no matter how improbable) must be the answer.”

We have no visible buyers for U.S. Treasuries, yet seemingly infinite demand. More specifically, we have no visible sources of capital to even finance the purchase of all of those Treasuries. Thus the phantom-buyer of all of these Treasuries must be an entity capable of “manufacturing capital” – directly implying that this phantom-buyer has a printing-press at his/her disposal.

At the same time, we have B.S. Bernanke getting in front of microphones day-after-day insisting that he has ended all of his bond-buying – i.e. the latest episode of “quantitative easing”. The obvious question is: can we trust anything that B.S. Bernanke says?

Could we trust him when he assured us about the U.S.’s “Goldilocks economy”? Could we trust him when he insisted again and again that the detonation of the largest asset-bubble in human history would lead to a “soft landing”? Could we trust him when (every six months or so) he announced another “exit strategy” from the serial money-printing and massive expansion of the Fed’s “balance sheet”? Indeed, placing one’s faith in the words of Ben Bernanke implies the same level of naivety as trusting a Goldman Sachs banker when he says “Have I got a good deal for you!”

Given that there is no other plausible buyer for U.S. Treasuries (in the entire world) than the Fed itself, and given that B.S. Bernanke is an individual whose personal credibility is somewhere below zero, what does this imply? Very simply, the Federal Reserve (and its Chairman) are secretly counterfeiting vast numbers of U.S. dollars, and then using that fraudulent “currency” to buy all these unwanted bonds and thus prop-up the Treasuries market.

Regular readers will note that this is in no way a “new accusation” which I am leveling at the Fed. Rather, this massive market fraud has been plainly visible on several other occasions – and I have identified those occasions in previous commentaries. Thus at this point it is necessary to explain “motive”.

Why does the Fed sometimes tell the truth about its bond-buying, while most of the time it covers it up? To understand that we need to refer to the words of someone who claims to understand bankers better than most, former Goldman Sachs employee and head of the CPM Group, Jeffrey Christian.

In The Great Gold Debate”, it was Christian who revealed one of the banksters’ fundamental Market Principles:

One of the first things you know about intervention in [i.e. manipulation of] the currency markets…is that it’s much more effective if people don’t know what you’re doing. They only see the effects you know, I mean there are reasons why people [i.e. bankers] don’t want the market to see them coming…”

The motive for the Federal Reserve to secretly counterfeit $trillions of U.S. dollars in order to buy U.S. Treasuries and prop-up the market is obvious: it allows Bernanke and the Fed to engage in the ludicrous charade that both demand for U.S. Treasuries and the market itself are “strong” – when nothing could possibly be further from the truth. Given that the Fed has never been audited in its near-100 year history means that we can add “means” and “opportunity” along side the extremely obvious motive.

Indeed, there is no mystery at all as to why B.S. Bernanke would want to counterfeit U.S. currency in order to secretly buy-up Treasuries. Rather, given the Market Principle by which the bankers operate, the real question here is why would Bernanke ever actually admit what he was secretly doing – i.e. “announce” some of his quantitative easing?

Fortunately this is a question which has been answered on countless occasions, by numerous commentators. If we refer back to media literature at the time of “QE I”, and even more so when “QE II” was announced, we see a plethora of commentaries which were almost identical.

These commentators were quite clear that they did not expect quantitative easing to accomplish must positive “good” – but yet they proclaimed themselves to be in favor of this policy despite its dubious potential. Why? Because they considered it absolutely crucial for “the market” to see the Fed and/or U.S. government “doing something” – and so the Fed simply announced the same manipulation of the U.S. bond market in which it had already been secretly engaging.

We thus have the one-and-only “exception” to the bankers’ Market Principle that it’s always best to hide their manipulation of markets: when the sheep are spooked so badly that they are reassured to be told that a market is being manipulated.

There is yet one more reason to find this latest episode of Treasuries-fraud to be especially alarming. Generally anyone engaging in such a massive, serial fraud would make efforts to disguise their actions. Yet here we have absolutely no attempt to do so.

Had the Fed’s fraudsters allowed Treasuries prices to decline at least modestly during this latest panic in the U.S. bond market, then at least they could have made a semi-plausible claim that (somehow) a herd of new sheep had suddenly and miraculously shown up to buy that massive amount of unwanted bonds (at near-record prices). Instead we have a farce so utterly absurd that it should not fool anyone with the brain-power to be able to count their fingers and toes (with only a minimal number of mistakes): infinite buyers lining-up to buy worthless U.S. Treasuries at the highest prices in history – despite there being zero visible buyers in this market.

I would suggest that it is impossible to construct a more outrageous scenario, even in totally hypothetical terms. On that basis it seems entirely reasonable to dub these latest events “maximum fraud”.

Comments (14)Add Comment
Jeff Nielson
written by Jeff Nielson, January 07, 2012
Djb, I've read with interest some of the articles which have been written about "re-hypothecation", and there certainly appears to be some substance.

However, I strongly caution all readers not to embrace the "carbon tax-credit" DISINFORMATION which is now one of the primary obsessions of the propaganda-machine.

I remind all those buying into this propaganda that IF you believe any of these ridiculous "theories" being distributed that you must NECESSARILY believe that Big Oil and the U.S. government are the "good guys" - because over the past 20 years it is Big Oil and the U.S. government who have been the world's greatest OBSTRUCTIONISTS here (by a factor of more than 100).

I can't stop readers from believing in a world where Exxon and BP are "saints" rather than "sinners", but I utterly reject such dogma myself.
written by djb, January 06, 2012
The next bankster scam will be the carbon credits markets, using dubious environmental science to scare governments into taxing us to the hilt.
written by djb, January 06, 2012
check out this website for more good articles on how the Vampire banksters have caused the sub-prime crisis and have now moved on to the sovereign debt crisis using the same methods of repo and hypothecation,with mickey mouse collateral.
Jeff Nielson
written by Jeff Nielson, January 06, 2012
Thanks Dalkrin!

I continue to tell people that we are better sitting with our (undervalued) assets in frustration - and knowing they are undervalued - than the opposite extreme: if there was ZERO manipulation of the sector and gold and silver had soared into "bubble country".

That said, an EXTREME episode like this is generally the precursor to a spectacular upside break-out...maybe not quite the "moon shot" we saw after the Crash of '08 - but it should be enough to get us to forget the last 6 months. smilies/wink.gif
written by Dalkrin, January 05, 2012
Jeff, a hat tip and a phony-paper burning conflagration to you for your consummate skill at reducing what seems to be a PhD level financial boondoggle down to it's bare essentials: Nothing more than a con-artist doing sleight of hand, but on a grossly expanded scale.

Sherlock Holmes, my instinct tells me, would be a very dubious investor when it comes to the prospect of buying any notes issued by the US Government.

Still sitting on my miners and bullion, but this year I hope to see more of the world, especially Asia. Who knows how long they (Vampire Squid) can keep up this exercise in mass delusion.
Jeff Nielson
written by Jeff Nielson, January 05, 2012
As a bridging mechanism to get there, I'd propose that the average Joe be allowed to sit in on committee meetings and/ or House votes. Citizens could, if they so choose, participate in on the votes. This would be similar to the HSP model of a parallel currency in that the government couldn't legitimately oppose it without admitting that they are part of the problem.

Mathnerd, my own views on the direction in which reforms need to go is significantly. Understand that corruption is NOT our only problem. We also have the "idiot factor". Not only do VOTERS not have the slightest understanding of the issues (let only the solutions), but the level of understanding of many/most politicians is little better.

In other words, even IF the current Cast of Clowns WANTED to do the right thing, I haven't seen the slightest indication that these incompetents are CAPABLE of figuring out what needs to be done.

I prefer (ironically) more of a "corporate" model of democracy. Citizens elect a "Board of Directors" (who do NOT have any access to the public Treasury). And instead of the farcical popularity-contests we call "elections", voters would choose candidates based upon only published resumes - with perhaps a few carefully structured political debates.

This would remove "attack ads" (and all of the other negative campaign B.S.) from our political system, since there would no longer be any POLITICAL PARTIES. The media would be FORCED to actually discuss ISSUES rather than merely muck-rake. Voters would be FORCED to educate themselves to some extent (at least enough so that the resumes MEANT SOMETHING) to them - and those who couldn't be bothered to do so would simply not BOTHER voting, removing most idiot-voters from the process.

Once the election was concluded, that Board of Directors would then APPOINT the actual administrators of our government - who would have NO DIRECT interaction with voters. Thus instead of these administrators being POLITICIANS pandering to get re-elected (like we have with our current system), we would have QUALIFIED PROFESSIONALS running our government - who would be kept or fired based on whether they did a GOOD JOB, and not on whether they could win a popularity contest...
Jeff Nielson
written by Jeff Nielson, January 05, 2012
what is puzzling to me is that this activity should have a BIG effect on the price of gold, yet, unlike the QE announcements that popped the price, the gold price is now sort of range bound... do you anticipate a time when gold will finally start to reflect this covert counterfeiting? Short of a revolt by the people?

Tuscon JJ, the frustrating thing for all of us in the sector is that THROUGHOUT this recent trough in the sector that fundamentals have only gotten "better" - i.e. the economic-catastrophe-in-the-making has only gotten WORSE over these last several months.

What we have here is another "operation" which is so overwhelming in scope that it TOTALLY drowns-out all fundamentals-based trading (at least it does in the PHONY, paper market). I've suggested that the basis of this operation could be a bunch of "new gold" which the banksters might have been able to recently plunder. Others have suggested that this is a consequence of the MF Global collapse - indeed that the "collapse" was a deliberate take-down to torpedo gold and silver.

There are TWO important points to note:

1) Such EXTREME manipulations such as this put enormous strains on the REAL market for gold and silver, as these phony prices only encourage the Chinese and Indians to buy, buy, buy.

2) As a result of (1), each time one of these extreme manipulations there is a greater and greater probability of a simple, final "decoupling" between the fraudulent paper market and the REAL bullion market.

We would wake up one morning and find that the prices being quoted in Asia (and by dealers of REAL bullion) would be SIGNIFICANTLY different between the fraudulent paper prices. It's a situation which can't last for any length of time (before the paper market implodes), so it's about the only scenario where we would get a "warning" of the imminent collapse of the paper market.
written by mathnerd, January 04, 2012
In other words the Western model of representative democracy has clearly failed - because it has LITERALLY allowed itself to be bought-out by the Oligarchs. We are headed for a period of "revolution", where the power of the Oligarchs MUST be substantially reduced, because their models of economic oppression are absolutely unsustainable.

Good point Jeff. The general public needs to get more involved in politics.

As a bridging mechanism to get there, I'd propose that the average Joe be allowed to sit in on committee meetings and/ or House votes. Citizens could, if they so choose, participate in on the votes. This would be similar to the HSP model of a parallel currency in that the government couldn't legitimately oppose it without admitting that they are part of the problem.

There are two roadblocks that I can see, though.

First, I'm not sure whether or not the Constitution would have to be changed to allow that. The powers that be would make this argument.

The other potential problem is accountability for one's actions. You could say citizens must sign in for each session and have a particular set of punishments for specific offences. I guess some idealogues would sit through a four-hour session for the chance to denounce their scapegoat, but whatever - we already have idealogues in government.

If this policy was adopted, you'd effectively have a referendum on every vote - without adding to the bureaucracy at all. The elected representatives would only have a substantial voice on the issues nobody cares about.

Because the House of Commons would is relatively small and would only be easily accessible to residents of Ottawa, the government could set up a link via Skype to the city hall of each interested resident.

I think this could work to introduce true democracy to provincial and federal governments. For that matter, I think this could be adopted in other countries as well as a useful tool in avoiding civil disorder.

Am I being overoptimistic here, or could this actually work?
Tucson JJ
written by Tucson JJ, January 04, 2012
I actually find the information here a great benefit... nice job, Jeff... what is puzzling to me is that this activity should have a BIG effect on the price of gold, yet, unlike the QE announcements that popped the price, the gold price is now sort of range bound... do you anticipate a time when gold will finally start to reflect this covert counterfeiting? Short of a revolt by the people?

The audit the Fed question fascinating... the refusal to allow an audit should definitively brand those in congress that oppose it traitors and shills for the big money elites and banker class... yet it does not seem to work that way... is it because the typical US citizen is a total dunce/sheep?
Jeff Nielson
written by Jeff Nielson, January 04, 2012
Samix this is where the bankster/Oligarch dynamics get interesting as previously their control-groups have been virtually lily-white institutions.

At the very least this attitude reflects EXTREME cultural arrogance, if not outright racism. I question whether these (white) bankers and Oligarchs are CAPABLE of welcoming/including the Eastern (non-white) leaders of commerce who acquire more and more economic and political prominence each year...
written by samix, January 04, 2012
Jeff, what troubles me is that if you look at history, the bankers have been nothing more than ever migrating parasites, so now they are living with the US+Dollar equation, then they move from here to Europe+Euro equation and then when that collapses, they move on to, lets say, India+Rupee equation.

When the latch on to a new country+currency, they drive up the standard of living of the people there, secure special rights for the citizens of the country around the world, basically make them feel privileged(with the help of money power), and then dump them mercilessly in the end to move to the next prey. I guess stopping this trend is more important, because the entire of the EU/USA can be galvanized down to the last man, all the bankers need to do is move from US/EU to India and using their alchemy make India terribly rich, raise the standard of living of Indians etc etc and the deception goes on.
Jeff Nielson
written by Jeff Nielson, January 04, 2012
Thanks for the comments!

Whenever I'm asked to speculate on when this will end, I find myself inevitably focusing on a couple of popular fantasies/fairy tales: "The Emperor's New Clothes"; or Alice in Wonderland.

How can these farces not end TODAY? How can Europe's traitor-governments continue to sit back and allow banker-terrorists to rape their economies via the fraudulent credit default swaps market?

How can other nations ignore the obvious counterfeiting of U.S. dollars being done by the Federal Reserve to prevent the U.S. bond market from immediately imploding?

Apparently we are now in an age when (in most nations at least) NO significant and POSITIVE changes will take place in our societies unless these reforms are TOTALLY driven from the bottom up.

In other words the Western model of representative democracy has clearly failed - because it has LITERALLY allowed itself to be bought-out by the Oligarchs. We are headed for a period of "revolution", where the power of the Oligarchs MUST be substantially reduced, because their models of economic oppression are absolutely unsustainable.

Trying to estimate WHEN we will have the necessary "critical mass" of public awareness to drive needed reforms is impossible to answer, as is trying to predict how MUCH force/violence the Oligarchs are prepared to use to try to PREVENT those reforms.
written by paxjds, January 04, 2012
Jeff, you have BS Bernanke pegged to the cross. He is also buying up over 100 Billion $'s a month in stealth Treasuries to cover the US federal monthly deficit bill.
jimha's question above is the biggest question on the planet!
written by jimha, January 03, 2012
I think that most readers of this site are fully aware of the information in this article. The question is how and when does this play out.

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