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Reply #48: "There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail." [View All]

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DireStrike Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jul-02-10 03:35 PM
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48. "There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail."
Edited on Fri Jul-02-10 03:39 PM by DireStrike
The only sticking point in the entire article. (Edit: ThomWV points out a good criticism as well above: http://www.democraticunderground.com/discuss/duboard.ph... )

Now, to my point:

http://www.pimco.com/LeftNav/Featured+Market+Commentary...

Heres the problem that the U.S. Feds exit poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve.


Now this is not inherently a problem (as Galbraith puts it) "so long as U.S. banks are required to accept US. Government checks -- which is to say so long as there is a Federal authority in the Republic." The auctions do not fail because they can be bought out with imaginary money. The imaginary money will be accepted as long as there is a federal authority.

Can we really have bond auctions like this without eventual destabilization of the federal authority?
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