Monday, September 14, 2009
Everyone knows that the American government is gaming the market for treasury bonds to some extent.
For example, the government has itself bought some U.S. Treasuries.
Some writers, such as Rob Kirby and Ellen Brown, go much further, alleging that Bernanke and the boys have also used hedge funds in the Cayman Islands to secretly buy huge sums of U.S. treasuries using dollars printed by the Federal Reserve, while pretending that independent "Caribbean banks" are doing the buying. See this, this and this. I have no idea whether or not they are right.
Perhaps most dramatically, Keith Fitz-Gerald (Contributing Editor to Money Morning, Investment Director of the Money Map Report and editor of the New China Trader) - who has seemed like a very level-headed guy in the past - is now claiming that the U.S. government has recently changed the rules so that the Fed can itself buy U.S. treasuries but claim that the buyers are foreign:
The U.S. Government wants the public to believe that China, Japan and Europe are still happily buying U.S. debt to fund the American economic turnaround. The only problem is - they're not...If Fitz-Gerald is right, then the story that China was a net seller of U.S. Treasury bonds for the first time ever in June takes on added significance. And the claim that China's bond purchases have increased recently loses credibility.
The reality is that the Treasury changed the way U.S. debt is accounted for when purchased on the open market. U.S. debt selling on the open market can be considered as having been sold to "foreigners" even if the purchaser was the Federal Reserve! Voila! A sleight of hand by the U.S. Government, and China and Japan can appear to be buying debt while at the same time selling debt.
It is obviously important to quickly either debunk or verify Fitz-Gerald's claim. Can anyone at Treasury or one of the relevant market makers tell us one way or the other?