Last week there was a disturbing article in the Financial Times of London that raised a simple, but unanswerable question: Who's buying US Treasury Notes? In other words, who's buying all the debt that is being created with reckless abandon each and every day by the federal government? Last week auctions of U.S. treasury notes attracted very strong buying from domestic institutional investors. Several investment experts cited in the article speculate that there is "one big bidder" who is buying all the debt.
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What's disturbing is that this bidder is anonymous. These are "direct bids" which means they bypass the primary dealers that underwrite government bond sales. On Wednesday last week, 17% of 10 year notes went to direct (or anonymous) bidders (up from an average of 7.4%). On Tuesday, 23.4% of the bidding on 3 year notes were direct bids. Up from an average of 6%.
One market participant said "It appears that someone is trying to hide their apparent interest in owning these auctions from the rest of the market". Another market participant said "It is unusual to see such a spike in the direct bid and I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever."
What would happen if this mystery buyer was not in the market? There would be unsold debt. In order to sell it, the price would have to go up. Way up from it's current levels. This would raise the cost of servicing the federal debt to unsustainable levels. But isn't the debt already at unsustainable levels? Even if we "tax to the max" all individuals and corporations we still can't pay things off let alone service the debt. So in effect, this mystery buyer is merely buying time. But buying time for what? A devaluation of the currency? A revaluation of gold to many multiples of its current price? A default on our debt? A bank holiday? A new currency? Or maybe, all of the above?
When market participants say there is no way we will find out who this anonymous bidder is, not now, or ever, I find it alarming. What happened to the market transparency that both Geithner and Obama pledged to the American people? These auctions are in the tens of billions of dollars and we're supposed to believe no one knows who's making these purchases? What if its a hostile foreign enemy who is purchasing our debt for nefarious reasons? Let's face it, you and I can't deposit or withdraw more than a few thousand dollars cash at our local bank without getting flagged and monitored, I would think that anonymously purchasing tens of billions of dollars of US treasury debt would get the purchaser of that debt flagged and monitored as well. Let's face it, if there really was a truly anonymous bidder, someone whose intent was to harm us financially, warning bells would be going off everywhere and our security apparatus would be all over it, right away. It's probably safe to say that the anonymity is just a facade, and the true identity of our anonymous bidder is none other than Uncle Ben Bernanke himself.
One market participant said "It appears that someone is trying to hide their apparent interest in owning these auctions from the rest of the market". Another market participant said "It is unusual to see such a spike in the direct bid and I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever."
What would happen if this mystery buyer was not in the market? There would be unsold debt. In order to sell it, the price would have to go up. Way up from it's current levels. This would raise the cost of servicing the federal debt to unsustainable levels. But isn't the debt already at unsustainable levels? Even if we "tax to the max" all individuals and corporations we still can't pay things off let alone service the debt. So in effect, this mystery buyer is merely buying time. But buying time for what? A devaluation of the currency? A revaluation of gold to many multiples of its current price? A default on our debt? A bank holiday? A new currency? Or maybe, all of the above?
When market participants say there is no way we will find out who this anonymous bidder is, not now, or ever, I find it alarming. What happened to the market transparency that both Geithner and Obama pledged to the American people? These auctions are in the tens of billions of dollars and we're supposed to believe no one knows who's making these purchases? What if its a hostile foreign enemy who is purchasing our debt for nefarious reasons? Let's face it, you and I can't deposit or withdraw more than a few thousand dollars cash at our local bank without getting flagged and monitored, I would think that anonymously purchasing tens of billions of dollars of US treasury debt would get the purchaser of that debt flagged and monitored as well. Let's face it, if there really was a truly anonymous bidder, someone whose intent was to harm us financially, warning bells would be going off everywhere and our security apparatus would be all over it, right away. It's probably safe to say that the anonymity is just a facade, and the true identity of our anonymous bidder is none other than Uncle Ben Bernanke himself.
